Auto loans surge in 2017 ahead of excise tax
By Melissa Luz T. Lopez
Senior Reporter
FINANCING for vehicle purchases surged in 2017 as borrowers brought forward their buying ahead of tax reform, which raised excise taxes on automobiles at the start of 2018, the Bangko Sentral ng Pilipinas (BSP) said in a report.
Total motor vehicle loans rose to P474.768 billion, up 22.3% from a year earlier. Auto loans accounted for the bulk of the total at P457.738 billion, up 21.6%.
“Strong” demand for cars drove an increase in consumer loans for cars as well as commercial vehicles, which in turn led to increased lending by banks and financing companies, the central bank said.
In particular, retail clients availed of flexible financing schemes offered by lenders, amid strong demand for new car models.
“In addition, anticipation of the approval of the TRAIN (Tax Reform for Acceleration and Inclusion) Act which imposes higher consumption taxes on goods such as cars likewise pushed the demand for motor vehicles,” the BSP said in its Fourth Quarter report on economic and financial developments published last week.
Signed into law by President Rodrigo R. Duterte in December, Republic Act No. 10963 or the TRAIN Act increased excise tax rates on automobiles, among other items, when it took effect on Jan. 1.
The new law raised the levy on cars, with units valued P600,000 or cheaper to be charged around 3% in tax from a 2% average previously. Cars worth P4 million or higher will also be taxed as much as 50%, compared to an average rate of 22% under the old regime.
Latest available central bank data showed that auto loans accounted for 5.4% of banks’ total loan portfolio, which stood at P8.475 trillion as of end-2017. The share grew from 5.22% the prior year.
Of the outstanding car mortgages, P441.142 billion are considered to be of good standing, while some P16.596 billion are considered nonperforming — at least 30 days past due. This accounted for 3.63% of total car loans.
Banks have set aside some P10.239 billion as reserves for potential loan losses from auto loans, up 9% from a year earlier.
On the other hand, lending for motorcycle purchases hit P17.031 billion, up 42.8% and accounting for 3.6% of motor vehicle loans, according to BSP data.
Vehicle sales were flat in the first two months of 2018, growing 0.6% year on year to 57,821 units, according to a joint report from the Chamber of Automotive Manufacturers of the Philippines, Inc. and Truck Manufacturers Association.
Car sales in 2018 were the worst hit by TRAIN, falling 10.5% in the year to date to 17,982 units as the market is “still adjusting to the new excise tax regime,” the car makers said.
