Russia’s two biggest banks are betting a resumption of subsidies for the automotive industry will return car sales to growth, bolstering lending.
Car loans will increase 13 percent this year amid government help for consumers, the retail arm of VTB Group, the nation’s second-biggest bank, said last week in an e-mailed response to questions. The program will support demand for credit, OAO Sberbank, the largest lender, said by e-mail. Financing through car loans and leasing contracts increased 4 percent last year in Germany, according to car-lending association AKA’s website.
The banks are counting on a resumption of state incentives to revive auto sales, after they slumped for the fourth straight month in June, amid the slowest economic growth since 2009. Car loans are more profitable than corporate lending, with a net margin as much as 18 percent, compared with 5 percent for companies, said Nadezhda Bozhenko at UralSib Financial Corp.
“The government is trying to boost demand for automobiles and producers,” Rinat Kirdan, head of fixed-income research at Aton LLC in Moscow, said in a phone interview on July 4. “The measure will help in the short term, but as soon as the subsidies end, the market will decline.”
Prime Minister Dmitry Medvedev’s government plans to start supporting sales of budget vehicles this month, Yuri Koritsky, an Industry and Trade Ministry spokesman, said by phone from Moscow on July 4. The program will help sell as many as 250,000 additional cars in the period, Industry Minister Denis Manturov said on state television on June 21.
The nation began assistance for the automotive industry in 2010, with a rebate program to encourage Russians to buy domestically made cars to replace old models. Sales of new cars and light vehicles rose 30 percent in 2010, 39 percent the following year and 11 percent in 2012 to 2.94 million units, according to the Association of European Business. Sales decreased by 11 percent in June, the group, which expects a decline of 5 percent for 2013, said on July 8.
Under the plan, the banks will be able to provide subsidized loans for customers buying cars priced as high as 700,000 rubles ($21,200) until the end of 2014, according to the Industry Ministry. A Lada Granta starts at 279,000 rubles, according to the website of OAO AvtoVAZ, Russia’s biggest automaker. A Ford Focus retails from 542,00 rubles, the Ford Motor Co. website in Russian shows.
Russia’s car loan market expanded 20 percent to $26.1 billion in 2012, according to an Ernst & Young LLP report. State-controlled Sberbank and VTB hold more than half of the market, data of Russian research company Avtostat show.
VTB24 plans to increase its share of the auto-loan market, Chief Executive Officer Mikhail Zadornov, said in an interview in St. Petersburg in June. The bank increased the number of car loans it gave out by 32 percent in the first five months to 65,000, VTB24’s press-service said in response to questions by e-mail. VTB raised $275 million by securitizing car loans in August 2012, the bank said at the time.
Sberbank provided 62,728 auto loans valued at 30.1 billion rubles in the first five months, a drop of 8 percent from the same period in 2012, the bank’s press service said by e-mail. The lender aims to increase market share by year-end, it said, without specifying what it is now.
“The question now is whether the market can do better in the second half of the year,” Joerg Schreiber, chairman of the AEB Automobile Manufacturers Committee, said in the July 8 statement. “The chances for that have increased with the announcement of government plans to subsidize credit-backed vehicle purchases. We hope these plans will be implemented quickly, for the expected positive effect to be felt in the coming months.”
Russia is rated Baa1 at Moody’s Investors Service, the third-lowest investment-grade category. The yield on Russia’s dollar bond maturing in March 2030 fell two basis points to 4.21 percent as of 12:30 p.m. in Moscow. The extra yield investors demand to hold Russia’s debt rather than U.S. Treasuries was unchanged at 234, compared with 213 for debt of Mexico, according to JPMorgan Chase & Co. indexes.
While car loans account for less than 10 percent of the portfolios of Russia’s biggest banks, the margins are attractive, UralSib’s Bozhenko said.
“Lending for buying new cars is a small but profitable bank business,” she said by phone from Moscow on July 4. “So it makes sense for banks to develop it for additional proceeds.”