CBE regulations on retail bank loans expected to boost car payments through direct instalments

Customers will escape from banking restrictions, says Honourary Chairman of AMIC

Automotive sector officials expects the Central Bank of Egypt's (CBE) new regulations on retail banking to increase the demand for direct instalments by 10%-15%.
CBE's new regulations prohibit Egyptian banks from offering retail loans with monthly instalments that exceed 35% of a debtor's net income. Retail loans include credit cards, personal loans, and loans to purchase cars for personal use.
Honourary Chairman of the Automotive Marketing Information Council (AMIC) Raafat Masrouga said CBE's decision will limit demand on cars. However it will increase demand on car payments through direct instalments, rather than through bank loans, to overcome the new restrictions.
Some companies that offer car payments in instalments operate through banks, working as a liaison between banks and customers. Therefore their sales will not be significantly affected.
Masrouga noted that supply and demand in the Egyptian automotive market is currently in recession. Furthermore he believes this will be further exacerbated by CBE regulations on retail loans, as well as the recent regulations aiming to limit imports of "luxury goods".
He explained that the cap on dollar deposits is insufficient to allow automotive companies to purchase a total of 25,000 cars monthly, which is the number targeted by the market to achieve sales growth.
Sales Manager at Mubashir Mohamed Soliman, operating in the field of direct car instalments, expected CBE's decision to increase demand on direct instalments by 10%-15% within this year.
He explained that 50% of the market's sales are conducted through instalment systems, 70% of which are acquired by the banks while the remaining 30% are acquired by instalment companies and showrooms.
Following CBE's regulations on retail loans, banks will cancel the loaning system whereby customers could obtain the loan with only their personal identification cards, provided they made a 50% down-payment.
As such companies that provide direct instalments will maintain this system, which will attract more customers to them.
He explained that CBE's regulations do not apply to these companies and as such the companies that dealt with the banks will redirect their customers' demands through their own instalment systems.
Meanwhile Member of Cairo Chamber of Commerce and Chairman of El-Saba Automotive Alaa El-Saba said CBE's recent decision will negatively impact car sales, which rely heavily on instalments.
He expected sales of automotive agents and distributors to decline by 30% in 2016, confirming that the decision will positively impact the direct instalment companies.
The four companies operating in direct instalments in the Egyptian market are Drive, Contact Cars, Mubashir, and Rawaj Auto Finance.