Banks more cautious in approving car loans with OPR increased to 2.25% – expect more rejections
Banks are now more cautious when it comes to approving auto loans, according to a report by Berita Harian. This follows Bank Negara Malaysia’s recent decision to raise the overnight rate (OPR) from 0.25% to 2.25% on July 6, 2022.
This is the second time the OPR has been raised this year, with the previous increase announced on May 11, 2022, also by 0.25%, to 2%. Prior to this, the OPR was held at a historic low of 1.75% from July 7, 2020 to March 3, 2022 to support the economy as the country battled the Covid-19 crisis.
Malaysia’s central bank also announced on July 6, 2022 that year-to-date headline inflation averaged 2.4% – the inflation rate is expected to remain within the forecast range of 2.2% 3.2% for the year.
Based on historical data, RHB Investment Bank analyst Jim Lim Khai Xhiang said that when the OPR, which impacts a bank’s interest rate for borrowings, was 2% between February 2009 and February 2010, the average auto loan approval rate was 60%. He added that when the OPR was increased to 3% between May 2011 and June 2014, the percentage dropped further to 51%.
If the OPR were to be increased further, Lim said hire-purchase rates would likely increase as well, making it more expensive and more difficult for customers looking for a car loan. “As such, we believe banks will be more cautious with lease-purchase approvals. This could potentially lead to lower lease-purchase loan approval rates,” he continued. .
He added that rising inflation could further weaken consumers’ purchasing power, which could be made worse if the government implements measures to reform subsidies. “In our view, since buying a car is a purely discretionary decision, in the face of rising cost of living and rising vehicle prices, more price-sensitive users may be more inclined to hold back on non-essential shopping,” Lim said. .
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