DBS takes fast lane to used-car loans, doubling its market share

Singapore

IN JUST a year, DBS has doubled its used-car loan market share as it muscled into a space traditionally dominated by lenders like Hong Leong Finance and Maybank.

The bank grabbed a chance to push into this segment on the back of regulatory changes, and plans to rev up growth in used-car loans by 20 per cent, Nelson Neo, head of new business for DBS' deposits and secured lending division, told The Business Times.

This, however, will depend on the direction that the ongoing virus outbreak takes, given that motor vehicle sales may face pressure in the current economic situation as consumers become more cautious with their large-ticket purchases, he said.

The bank's decision to zoom in on the used-car segment came about two years ago, partly due to regulatory changes as well as expectations of decreasing certificates of entitlement (COEs) over time, said Mr Neo.

Back in 2016, the Monetary Authority of Singapore eased car loan guidelines, with buyers able to borrow up to 60 to 70 per cent of the purchase price, depending on the open market value, up from 50 to 60 per cent previously. The loan tenure was also raised to seven years, from five previously.

In the next two to three years, new car COEs are also expected to drop, in line with the government's plan for a sustainable and controlled population of vehicles on the road, he added.

"With the COE quota reducing, the argument is that the premium could possibly go up, but we have not seen it yet as it's too early to tell," he observed. "So what we see is really the potential, where consumers will continue to buy used cars, so that's why we decided to intensify our focus around used cars."

Before 2018, used-car loans made up 10 per cent of the bank's auto loans, with new-car loans accounting for the rest. Now, used-car loans make up 20 per cent.

The rapid expansion was a combination of competitive pricing by offering one of the lowest rates in town, stronger partnerships with dealers, and enhanced digital capabilities that allow car owners to complete a loan application online, he said. Its interest rates for used cars are similar to new cars at about 2.28 per cent.

Mr Neo pointed out that two years ago, used-car loan rates were higher than that of new cars, but they have since fallen to either on par or even lower, depending on promotions.

Aside from its new car pricing strategy, it is the bank's data and digital capabilities that have been a game-changer, he said.

Last October, DBS fully digitised its sign-ups, allowing customers to apply online either through the national data repository MyInfo or DBS' digital banking platform. This cuts down on manual, paper-heavy processes and saves time for customers as they do not need to physically go down to the bank to apply for a loan.

DBS now has a target of 80 per cent of used-car loans taking place online by 2021, a big jump from the current 20 per cent.

The bank has also strengthened its partnerships with used car dealers, which has led to an increase of 30 per cent in loan referrals from such partners in the past two years.

Apart from direct applications, DBS also partnered with car dealers to transform their platforms and connect with them via application programming interfaces so that customers can also apply through them, added Mr Neo.

DBS is looking to work with a dozen more car dealers this year to enable more digital services. It is also coming up with plans to collaborate with them on the bank's online car marketplace, which it considers an important platform for its digital conversion plan, he added.

The DBS car marketplace is where the bank works with its car partners to offer products and services such as accessories or workshops, as part of its efforts to build an ecosystem.

This is also a source of data for the bank to personalise offers on products and services based on their patterns of consumer spending.

But with the virus outbreak still ongoing, the outlook on car loans is more clouded than before.

Mr Neo said that it is still unclear how the situation will affect demand for car loans, although the bank has not seen an uptick in late payments.

He noted: "We do not expect an increase in our auto loan defaults this year, but we may revise our used-car loan growth down to 10-15 per cent if consumer sentiment becomes sluggish in the next three-four months."

However, he remains "confident and hopeful" that Singapore will get through the possible economic crisis and that the bank's plans for the used-car loan segment will continue.

"There are still potential car buyers who are on the sidelines and looking for good deals," he noted.