19th July 2022 - 2 min read
Banks may exercise more caution when approving car loans if the overnight policy rate (OPR) and inflation continue to increase, said an analyst at RHB Investment Bank, Jim Lim Khai Xhiang.
According to Lim, historical data has indicated that increases in the OPR tend to lead to lower car loan approvals. As evidence, he pointed out that when the OPR was at 2.00% between February 2009 and February 2010, the average approval rate for car loans stood at 60%. However, when the OPR was raised to 3.00% between May 2011 and June 2014, the average approval rate fell to 51%.
Lim explained that OPR hikes will translate to higher hire purchase rates, thereby making it more expensive for customers who are applying for car loans. “As such, we believe that banks will be more cautious when it comes to hire purchase approvals. This could potentially result in lower approval rates for hire purchase loans,” he said.
Additionally, Lim remarked that a rise in inflation may also dampen consumer purchasing power, forcing consumers to prioritise essential purchases. This will be made worse if the government decides to reduce the current subsidies, which could then result in an increase in the country’s core inflation rate.
“In our opinion, since purchasing a car is a decision made purely out of discretion, when faced with rising cost of living and higher vehicle prices, users who are more price sensitive may be more inclined to withhold non-essential purchases,” Lim further said.
Bank Negara Malaysia (BNM) has increased the OPR twice this year – in May and July – which raised the rate from a historic low of 1.75% to 2.25%. In the same vein, the central bank is expected to gradually raise the OPR to 3.00% by 2023 in normalising the policy rate. Meanwhile, Malaysia’s headline inflation rate is projected to range between 2.2% to 3.2% for 2022.
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