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DBS Asian Insights

DBS Group Research • May 2017

Indonesian
Multi-Finance Companies
Bridging Gaps with the Underbanked
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Indonesian
Multi-Finance Companies
Bridging Gaps with the Underbanked

Sue Lin LIM

Regional Banking and Finance Analyst
DBS Group Research
suelinlim@dbs.com

Benedictus Agung SWANDONO

Equity Analyst
DBS Group Research
agung.swandono@id.dbsvickers.com

Produced by:
Asian Insights Office • DBS Group Research

go.dbs.com/research
@dbsinsights
asianinsights@dbs.com

Goh Chien Yen Editor-in-Chief

Jean Chua Managing Editor
Geraldine Tan Editor
Martin Tacchi Art Director
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04 Executive Summary

06 Opportunities Stemming from the

Unbankable Population
Financial Inclusion, a Key to Growth
The Multi-Finance Industry
Landscape
Prospects for the Multi-Finance
Industry

21 Key Drivers for the Multi-Finance

Industry
Automotive Industry Outlook
Leasing and Heavy Equipment
28 Key Players and Market Position
4W Market Space
2W Market Space

38 Regulatory Framework for Multi-

Finance Companies

43 Moving Forward
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Executive Summary

A
Multi-finance t 35.9% of the country’s adult population, Indonesia has among the lowest
companies – bridging bankable populations in the world. Banking for the unbankable includes
gaps with the instances of micro lending, especially in rural areas. The initiation of the
underbanked branchless banking agenda has also addressed this to some extent. But
beyond that, the opportunity to further reach out to the unbankable population lies in
the hands of the multi-finance companies, which cover both urban and rural areas. The
government’s push toward improving financial inclusion opens opportunities for multi-
finance companies that are able to meet the financing needs of lower-income households.
Multi-finance companies are licensed to offer a range of services, including leasing,
consumer financing (the bulk of their business), credit card financing and factoring. But
unlike banks, they are not allowed to accept deposits. Like banks, multi-finance companies
are governed by Otoritas Jasa Keuangan, the regulatory arm of the Ministry of Finance.

Turning optimistic; We expect an improvement in financing demand in 2017. The Multi-finance Company
three critical factors to Association (Asosiasi Perusahaan Pembiayaan Indonesia) recently announced its forecast
watch of 10% financing growth for 2017 on the back of an improving economy and improved
commodity price trends. We identified three critical factors that will drive multi-finance
companies’ earnings in 2017: (1) Lower credit cost, (2) higher net interest margin (NIM) and
better growth, and (3) well controlled expenses. Note that some multi-finance companies
had to accelerate provisions as they had to change how non-performing loans (NPLs) were
classified, following stricter regulations to bring streamline NPL recognition in line with that
of banks – this caused provisions to be higher in 2016. We expect NIM expansion in 2017
on the back of lower funding cost as the banks have started to price down their loans,
which means multi-finance companies now enjoy lower funding costs via bank borrowings
(one of the main sources of funding for multi-finance companies). Meanwhile, asset yields
are expected to stay constant, as the interest rates offered to customers are not sensitive
to changes in the interest rate environment. In addition, operating costs are expected to be
flat as the companies have not been aggressive in expanding their service points.

Auto industry recovery With consumer financing dominating multi-finance companies’ loan portfolios, the auto
is key growth driver industry will be the key growth driver. Leasing growth relies mainly on heavy equipment
financing, which, in turn, is unfortunately dependent on commodity prices. Both these
segments have been in the doldrums in the past two years. The near-term exuberance
for commodity prices might not sustain throughout the year but we believe the positive
impact should be gradually felt. We expect the auto industry to pick up in 2017, boosting
the growth prospects of the multi-finance companies.
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Long-term potential, The auto penetration rate in Indonesia remains one of the lowest in the region. In 2015,
especially for four- there were only 13.7m cars and 99m motorcycles on Indonesia’s roads (versus its population
wheelers of 250m), based on data by the Indonesian Statistics Centre (Badan Pusat Statistik) and the
automotive association. The penetration rate for four-wheeler vehicles (4W) is a mere 5%,
lower than other developing countries like Malaysia and Thailand. However, two-wheeler
vehicles (2W) had much higher penetration at 40% in 2015.

Fragmented industry; There are a total of 201 multi-finance companies, with the top 20 companies commanding
obvious market leaders 65% (financing) market share. Each of them caters to its own niche by specialising in
several categories such as products financed – 4W, 2W, heavy equipment, etc. – and by
geographical reach. Multi-finance companies are typically owned by banks (both domestic
and foreign), brand-holding sole agents (Agen Tunggal Pemegang Merek, ATPM) of
cars and foreign principals of car makers (e.g. Astra International), and a few are family/
individual-owned. The strong multi-finance companies are those affiliated to banks and
ATPMs. The largest player, Astra Sedaya Finance, has only 8% market share, placing it
marginally higher among the top six multi-finance companies, which indicates how
fragmented the industry is.

Top players have better Compared to banks, multi-finance companies generate better returns. Generally, the major
profitability metrics multi-finance players record higher returns on equity and returns on assets as the benefits
than banks of higher asset yields outweigh the negatives of higher cost of funds, operating costs,
and credit costs. The higher asset yield is due to the ability to tap the unbankable market,
an advantage that banks lack. But it requires heavy infrastructure and labour to tap into
this market while the elevated credit cost is due to the higher risk profile of customers
compared to banks’ customers.

The government’s push toward improving financial

inclusion opens opportunities for multi-finance
companies that are able to meet the financing needs of
lower-income households
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Opportunities Stemming from

the Unbankable Population

A
t 35.9% of the country’s adult population, Indonesia has among the lowest
bankable populations in the world. Banking for the unbankable includes
instances of micro lending, especially in rural areas. The initiation of the
branchless banking agenda has also addressed this to some extent. But beyond
that, the ability to further reach out to the unbankable population lies in the hands of the
multi-finance companies, which cover both urban and rural areas. The government’s push
toward improving financial inclusion opens opportunities for multi-finance companies
that are able to meet the financing needs of lower-income households.

Financial Inclusion, a Key to Growth

The state of financial Indonesia has lagged behind other developing countries in terms of financial inclusion. A 2014
inclusion in Indonesia survey conducted by the World Bank indicated that only 36% of the adult population has a
formal account in a financial institution. This is lower than the average of East Asia and Pacific
countries (69%), the average of lower middle-income countries (42%), and even ASEAN peers
such as Thailand (78%). In terms of lending, the statistics are even less encouraging. Only 13%
of the adult population borrowed from financial institutions. However, it is quite surprising that
42% of these people prefer to borrow money from family or friends. This indicates that there
are plenty of untapped markets for lending in Indonesia. Poor infrastructure and education are
a few reasons why these markets remain isolated from the modern banking world.
Diagram 1. Indonesia: Banking penetration rate

*The numbers are as percentage of adult population (age 15+)

Source: Little Data Book on Financial Inclusion 2015, DBS Bank
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Diagram 2. Indonesia: Many are excluded from the financial system

*The numbers are as percentage of adult population (age 15+)

Source: Little Data Book on Financial Inclusion 2015, DBS Bank

Who are the unbankable? Reaching out to the unbankable has become a challenge, mainly due to Indonesia’s unique
geographical features and underdeveloped infrastructure. Furthermore, the potential
business in these areas is too small for financial institutions to justify setting up branches.
The operating cost of reaching out to rural areas has outweighed the benefits due to the
small-scale nature of such operations.

Diagram 3. Indonesia: Geographical and economic mapping

* Banking penetration defined as percentage of respondents reported to have an account at a financial institution
Note: BRI – Bank Rakyat Indonesia (Indonesia People’s Bank), BPR – Bank Perkreditan Rakyat (People’s Credit Bank/rural banks),
BKD – Badan Kredit Desa (Village Credit Board), LKBD – Lembaga Keuangan Bukan Bank (Non-bank Financial Fund)
Source: KPMG
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Diagram 4. Indonesia: Economic pyramid

Note: <US$1.9 a day = 96m people; US$1.9 to US$4.5 = 107m people

Source: World Bank, KPMG, DBS Bank

Multi-finance companies Multi-finance companies should be seen as capillaries of the financial system, allowing it to
are crucial proxies for channel a stream of funds to the unbankable space in more remote areas. Their operations
financial inclusion should not be viewed as “shadow banking” as their existence fits well with the regulators’
intention to improve financial inclusion in the country. Since 2014, the government has
allowed multi-finance companies to disburse multi-purpose financing, which provides a
simple and fast underwriting process. As an anecdotal example, BFI Finance (BFIN) can
underwrite multi-purpose financing over one to two days. A looser regulatory environment
has enabled multi-finance companies to be more flexible.

On the flipside, multi-finance companies are not allowed to gather deposits from customers
and tend to draw funding from banks, either through bank borrowings, joint financing or
channelling. They can also issue bonds to gather larger chunks of financing.

Multi-finance companies’ Consumer financing customers are mostly in the lower-income bracket and deemed
customers are not typical unbankable by larger banks. These consumers may not have sufficient collateral, may work
banking customers in the informal sector, and may not have verifiable credit history. Some do not have the
proper documentation needed to apply for a bank loan, such as a tax identification card.
The implied higher risk also means multi-finance companies are able to charge higher
rates than banks. The cost is also higher as multi-finance companies typically need a larger
network to remain close to their customer base. The business is also fairly labour-intensive,
especially for collections and sales.
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Service over pricing Lower-income customers are not sensitive to interest rates charged on their loans as long
as they can cope with the monthly instalments. They prefer financing companies that
provide fast approval and easy service.

Auto-related loans Currently, consumer financing dominates around 70% of the total loan portfolio of
currently dominate multi-finance companies, and this mainly consists of auto-related financing. However,
financing segments as the market for automotive financing becomes more saturated, we should see other
forms of financing such as multi-purpose financing, refinancing and also infrastructure
loans gathering growth pace. Furthermore, the government has allowed multi-finance
companies to participate in disbursing subsidised micro loans (Kredit Usaha Rakyat).

The Multi-Finance Industry Landscape

A fragmented industry There were 201 financing companies in operation in 2016. Over the past 10 years, several
had their licenses revoked due to non-compliance with regulations, the most common
issue being inadequate capital. Prior to the Asian financial crisis, there were over 212
multi-finance companies nationwide. They typically provide financing for consumption
needs (vehicle financing), leasing, factoring and credit cards. Currently, the majority of
multi-finance companies focus on consumer financing – new and used motorcycles (two-
wheelers, 2W) and cars (four-wheelers, 4W) – and leasing. Factoring remains a small part
of the industry. Credit cards are no longer a feature of multi-finance companies and it has
become the target segment of banks. However, we noted that a handful of multi-finance
companies are getting back into the game. New multi-finance company licences are still
available. Last year, PT Group Lease Finance Indonesia, a joint venture between PT J Trust
bank and Group Lease PLC in Thailand, was granted a licence.

Diagram 5. Multi-finance companies: Financing activities (August 2016)

Note: OJK changed the classification for financing activities from September 2016 – from “by type” to “by purpose”
Source OJK, BI, DBS Bank
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Change of financing We note that OJK changed the classification for financing activities from September 2016.
classification by OJK from Rather than “by type”, the classification is now “by purpose” – investment, working
September 2016 capital and multi-purpose loans – which is more in line with banks’ classification. For
example, passenger 2W and 4W (for personal use) financing is included under “multi-
purpose loans”. Commercial automotive financing with tenors of less than two years is
considered “working capital financing”, while tenors of more than two years fall into
“investments financing”.

Diagram 6. Multi-finance companies: Financing activities (February 2017)

Note: OJK changed the classification for financing activities from September 2016 – from “by type” to “by purpose”
Source: OJK, BI, DBS Bank

Overall growth has Despite growing at a faster rate compared to the banks, financing growth has moderated in
moderated since 2011 the past five years. There has been a confluence of factors contributing to the moderating
growth, the main one being the steep fall in commodity prices, as well as regulatory
changes. After the relaxation of the minimum down payment regulation in June 2015 (see
details in Diagram 53), automotive sales growth started to pick up and swing into positive
territory. We noted, however, that 4W sales recovered faster compared to 2W sales. We
believe that the low commodity price environment was more detrimental to the purchasing
power of ex-Java buyers who usually rely on 2W transport. Sales of 4W vehicles, on the
other hand, are more related to economic activity in major cities and urbanised areas,
which experienced less impact from softer commodity prices.
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Diagram 7. Multi-finance companies: Automotive sales versus crude palm oil price

Source: Bloomberg Finance L.P., Gaikindo, AISI

Diagram 8. Multi-finance companies: Financing activities year-on-year growth

bn

Source: OJK, BI, DBS Bank

Diagram 9. Auto: Volume sales improvement after down payment rule relaxation

Source: Gaikindo, AISI, DBS Bank

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Industry remains Automotive sales growth is the main driver for financing. Based on checks with industry
dominated by automotive players, about 70-75% of auto sales use financing. The leasing business is also dominant
financing activities and it usually involves support financing for heavy equipment (HE) or machinery sales.

Leasing business is Leasing business’ contribution to total financing shrank to 27% in August 2016 from
sensitive to commodity 34% in 2013. The weakness in this segment is mainly caused by sluggish HE sales. Softer
prices commodity prices, especially in the coal and crude palm oil (CPO) sectors, also dragged
down overall HE sales and, consequently, credit demand from the segment. Furthermore,
the leasing of machineries also contracted as some small- to medium-sized enterprises
preferred to halt their expansion plans until the economy starts to pick up.

Diagram 10. Multi-finance companies: Financing correlation with CPO price

Source: Bloomberg Finance L.P., OJK

Diagram 11. Multi-finance companies: Financing correlation with coal price

Source: Bloomberg Finance L.P., OJK

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Factoring business is small
Factoring is a form of short-term financing, typically involving tenors of less than one year. Clipan
Finance Indonesia (CFIN), one of the listed companies under our coverage, has a sizeable factoring
business with around 11% market share in 9M16. CFIN ramped up its factoring business in
2012 to channel its liquid assets as its leasing and consumer financing businesses were slowing.
Factoring yields are similar to leasing, at 15-17%, and are fully collateralised by land and buildings.

Bank borrowings remain Bank borrowings have been the preferred choice of funding for multi-finance companies,
main funding source contributing up to 77% of total funding. However, bonds issuances have been robust in the
past year. Note that only sizeable and credibly rated multi-finance companies have access to
such funding opportunities. The industry’s gearing ratio is at 8.2 times, which is still below the
maximum gearing ratio of 10 times under OJK’s regulation.

Diagram 12. Multi-finance

companies: Funding
composition (February 2017)

Source: OJK
Diagram 13. Multi-finance companies:
Gearing ratio (2015)

All are non-listed companies except Wahana

Ottomitra Multiartha, Adira Dinamika Multi
Finance, BFI Finance Indonesia, and CFIN. Data as
of 2015 is more complete and gearing ratio has
not moved much since then

Source: BI, Infobank

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Bond funding is gaining More multi-finance companies have been trying to tap into cheaper financing by issuing
popularity bonds in the past few years. Currently, bond financing contributes up to 22% of total
financing (versus 11% in 2010). Some companies are also trying to tap into overseas bond
markets to find cheaper financing. However, foreign currency bonds have lost their charm
recently due to high hedging costs (OJK requires all foreign currency liabilities to be fully
hedged), following the IDR’s volatility in the past few years.

Diagram 14. Multi-finance companies: Bond contribution to total financing

Source: OJK, DBS Bank

Joint financing and Joint financing or channelling schemes with banks are alternative sources of funding for
channelling schemes multi-finance companies. Under joint financing, both the multi-finance company and bank
“jointly” contribute funds to the arrangement. The proportion contributed by each party
differs between agreements, and risks and returns are shared in the same proportion.
Under channelling, full funding originates from the bank. The bank bears all the risks, while
multi-finance companies receive a fee for managing the financing contracts for banks. As
of February 2017, joint financing agreements reached IDR131t, while channelling was
at only IDR10t. It is a win-win situation for both parties; banks have access to a higher
yielding asset, and financing companies receive funding to grow their asset base.

Preference for joint Joint financing is more popular than channelling, respectively contributing 25% and 2% to
financing option total managed receivables (on- and off-balance-sheet receivables) in February 2017. Banks
prefer joint financing to channelling – given that multi-finance companies share the risk
of delinquent loans, banks can expect better quality credit than if these companies merely
acted as an agent under the channelling scheme.
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Diagram 15. Multi-finance companies: Joint finance and channelling

Source: OJK, DBS Bank

Chunky net interest Higher returns are mainly driven by higher net interest margins (NIM), thanks to lofty asset
margins, thanks to lofty yields. A multi-finance company can charge effective yields of up to 40%. However, the
asset yields higher margin is usually associated with higher operating costs. This is understandable
because multi-finance companies typically operate in rural areas to reach untapped
markets. This requires more personnel and branches (usually to conduct physical checks
of collateralised assets and repossessed assets). Multi-finance companies also face slightly
higher credit costs since their customers carry higher risks than banks’ customers.

Diagram 16. Multi-finance companies: Asset yield (August 2016)

Note: The latest data available is as at August 2016; subsequently reclassified

Source: OJK, BI, DBS Bank
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Sticky pricing Lending rates for multi-finance companies are not sensitive to policy changes. We have
seen Bank Indonesia (BI) cut rates by 150 basis points since the beginning of 2016 but the
asset yields of multi-finance companies have stayed relatively unchanged.

Diagram 17. Multi-finance companies: Asset yield versus 12-month BI Certificates (SBI) Rate

Source: OJK, BI, DBS Bank

Asset quality issues to Multi-finance companies have been plagued with asset-quality deterioration during the
be monitored; mostly economic downcycle, bringing the non-performing loan (NPL) ratio to a high of 2.2% in
regulatory driven August 2016, from 1.45% in December 2015. In September 2016, OJK changed its NPL
recognition category to be more similar with that of the banks, with five categories from
three categories previously. The reclassification saw the NPL ratio starting from a high of
3.4% in September 2016. However, it had moderated to 3.0% by end-February 2017.
Moreover, we also witnessed a spike in credit costs, which reached 2.51% in August 2016,
ending the year at 2.88%, versus 2.36% in December 2015.

Diagram 18. Multi-finance companies: NPL ratio

*OJK reclassified the NPL ratio for multi-finance companies to be more similar with that for banks in September 2016. The
reporting adjustment resulted in a spike in the NPL ratio
Source: OJK, DBS Bank
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Diagram 19. Multi-finance companies: Changes in NPL recognition

Overdue 3 categories before 5 categories after

Sep 2016 Sep 2016
On time payment Current Current

90 days in arrears Special Mention

90-120 days in arrears Substandard

120-180 days in arrears Doubtful Doubtful

More than 180 days in arrears Loss Loss

Note: Red considered NPL

Source: OJK, DBS Bank

Diagram 20. Multi-finance companies: Credit cost

Source: OJK, BI, DBS Bank

Prospects for the Multi-Finance Industry

Turning optimistic We expect an improvement in financing demand this year. The Multi-finance Company
Association (Asosiasi Perusahaan Pembiayaan Indonesia) recently announced its forecast
of 10% financing growth this year on the back of an improving economy and higher
commodity prices. However, we believe this is an optimistic number as the sustained
positive growth needs to be supported by real improvements in purchasing power and
business confidence, which we have yet to see.
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Diagram 21. Multi-finance companies: Financing growth versus GDP growth

Source: OJK, BPS, DBS Bank

Earnings growth We believe earnings should recover in 2017 on the back of lower credit costs due to
traction should improve improved commodity prices, which can help boost purchasing power, especially in the
from here lower-income segment. We do not expect much deviation on NIM due to the stable yields
and costs of funds of the multi-finance companies. Operating costs are also expected to be
flat as the companies have not been aggressive in expanding their service points.

Diagram 22. Multi-finance companies: Earnings growth

*Average earnings growth of BFIN and CFIN

Source: OJK, Companies, DBS Bank
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Potential NIM We expect NIM expansion on the back of lower funding costs as banks have started
expansion to price down their loans, which means multi-finance companies now enjoy lower
funding costs via bank borrowings. Meanwhile, asset yields are expected to be constant
as the interest rates offered to customers are not sensitive to changes in the interest
rate environment. Multi-finance customers are typically more concerned about monthly
instalments (whether they are able to pay), fast approval and easy service than they are
about interest rates. The higher reliance on bond financing could lower funding costs.
Bond financing has been gaining popularity and the data show that the bond financing
portion is on the uptrend. This might lower the blended cost of funds further as bond
financing is typically cheaper than bank financing.

Diagram 23. Multi-finance companies: NIM

Source: Companies, DBS Bank

Operating expenses Historically, the cost-to-income ratio was stable around 40%. The slight uptick in 2015
should remain in check was mainly due to weakening profitability – largely attributed to the slowdown in the
automotive business and heavy equipment. A slight improvement in 2016 was triggered
by some cost efficiency measures. We noted that Adira Dinamika Multi Finance (ADMF)
and Mandiri Tunas Finance (MTF) successfully improved their cost-to-income ratio in 2016
through network and employee rationalisation.
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Diagram 24. Multi-finance companies: Cost-to-income ratio

Source: Companies, DBS Bank

Improvement in asset Multi-finance companies reported lower NPL ratios in 2016. However, the multi-finance
quality companies we met were hesitant to turn bullish. Better commodity price would be positive
for their customers, especially for commercial heavy equipment leasing and factoring but
these customers need a sustained high commodity price to help their distressed cash flow.
However, we believe that positive asset-quality trends may come from the portfolio shift
toward customer financing and tighter financing approval.

Diagram 25. Multi-finance companies: NPL ratio

Source: Companies, DBS Bank

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Key Drivers for the Multi-

Finance Industry

W
ith consumer financing dominating the loan portfolio of multi-finance
companies, the auto industry will be the key growth driver. Leasing growth
relies mainly on heavy equipment financing which, in turn, is unfortunately
dependent on commodity prices. Both these segments have been in the
doldrums in the past two years. The near-term exuberance of commodity prices might not
sustain throughout the year but we believe the positive impact will be moderate. We expect
the auto industry to pick up slightly this year, boosting the growth prospects of multi-finance
companies.

Automotive Industry Outlook

Improved auto sector Industry sales came in slightly lower than our expectation in 2016, with FY16 volume growing
outlook for 2017; 4.8% on-year (we forecasted 5% on-year). Meanwhile, 2W demand is still weak as FY16 sales
expect a stronger volume shrank 8%, mainly driven by weak ex-Java sales due to sustained low commodity
second half prices. We are less optimistic about the 2W segment and expect only 2% volume growth in
FY17. Astra International’s management has guided that sales in FY17 will be second half-
heavy while the first half of the year should see flat volume growth.

Temporary support
from commodity prices
Sustained high CPO prices should help automotive sales, especially in the ex-Java areas.
However, purchasing power in the commodity-related regions has yet to show significant
improvement. We believe high commodity prices need to be sustained long enough to allow
the positive effects to spill over to the auto sector. Therefore, we only expect modest growth
(around 5% for 4W and around 2% for 2W) this year.

Long-term potential is The auto penetration rate in Indonesia remains one of the lowest in the region. Based on data
still there, especially for from BPS and the automotive association, there were only 13.7m cars and 99m motorcycles
4W on Indonesian roads in 2015 (versus the population size of 250m). The penetration rate for
4W is a mere 5%, lower than other developing countries like Malaysia and Thailand. However,
2W penetration was much higher at 40% in 2015.
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Diagram 26. Auto penetration in developing countries

Car ownership ratio Source: CEIC, BPS, Gaikindo,

DBS Bank

Diagram 27. Auto: 4W sales trend

Source: Gaikindo, DBS Bank

Diagram 28. Auto: 2W sales trend

Source: AISI, DBS Bank

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Penetration is low, but Despite the appeal of a low 4W penetration rate in Indonesia, we argue that only around half
is it that low? Only half of the Indonesian population can afford a car. Income equality has become a key feature in
the population can buy the Indonesian economy. This can be seen in the increase in the Gini coefficient to 0.4 in 2016
a car versus 0.36 in 1996. Data from BPS indicates that the top 20% of the Indonesian population
contributes to 48% of total expenditure, as shown in the chart below.

Diagram 29. Indonesia: Inequality is an important feature

Source: BPS 2014, DBS Bank

Diagram 30. Indonesia: Auto loan penetration

Note: Calculated as number of vehicles divided by national population

Source: BPS, Gaikindo, AISI, DBS Bank
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Affordability estimates
We estimated the car price an average Indonesian can afford in each segment. Using nominal
GDP per capita as a proxy of income, we estimated that the top 20% of the working
population (aged 15-64) has an average annual income of IDR176m per year. Assuming 30%
of the income is allocated to car instalments, a dual income, 25% down payment, and four-
year instalment period, we believe that families in this class can afford a IDR350m car.

Diagram 31. Auto: Price segmentation based on income

Income Brackets Population Annual GDP Annual GDP Capability Ideal Price
(mn persons)* Nominal per Capita of monthly Segment
2016 (Rp mn) instalment (Rp mn)***
(Rp tr) per family
(Rp mn)**
Top 20% 34,046 5,988 176 8.8 350

Middle 40% 68,092 4,292 63 3.2 130

Bottom 40% 68,092 2,134 31 1.6 60

Total 170,230 12,415 73 3.6

* Productive age (age 15-64) is 66.9% of total population, based on World Bank data in 2014
**Assuming dual income and instalment is maximum 30% of monthly income. Calculated as: annual GDP per capita* 2 * 30% / 12
*** Ideal price segment is based on credit simulation on Astra Credit Companies website assuming 25% down payment and four years tenor
Source: BPS; Gaikindo; AISI; DBS Bank

Small multi-purpose The affordability analysis might explain why small multi-purpose vehicles (MPV) – Avanza, Xenia,
vehicles are favourite Mobilio and Ertiga – have become the favourite cars in Indonesia. The prices of those cars fall in
cars the income range of the top 20% and middle 40% segments. Some brands, like Innova, have
also moved up to the higher-end target market segments to capture more affluent customers.

Diagram 32. Auto: Price and units sold by top 10 brands in 2016

Source: Gaikindo, DBS Bank

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Low-cost green cars We believe the middle 40% of the market offers the biggest potential due to its huge
segment has the lowest population. Based on the assumption we have laid out earlier, people in this segment can
penetrated market and afford cars with price tags of around IDR125m. This might be suitable for low-cost green cars
strong growth ability (LCGC), which are usually priced around IDR100m-150m per unit. This segment has barely
been penetrated. LCGC sales have not even reached 1m units versus the potential market of
51m units (assuming 102m people in the middle segment use one car per two persons).

Diagram 33. Auto: Market size for each segment

Note: Number of families is calculated as working population (age 15-64) divided by two
Source: BPS, Gaikindo, DBS Bank

LCGCs are gaining LCGC car volume saw a significant increase in market share, especially during the economic
market share slowdown in 2015. The market share of LCGCs swelled to 22% in 2016 from 14% in 2014.
The strong penetration rate is due to LCGC’s value proposition, which is well accepted by the
price sensitive lower-income consuming class. LCGCs also offer better fuel efficiency; and can
carry five to seven passengers, which is a strong selling point for young families in Indonesia.

Diagram 34. Auto: LCGCs are gaining market share

Source: Gaikindo, DBS Bank

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Leasing and Heavy Equipment

Sluggish leasing Leasing shrank by 12% in August 2016, the weakest growth since the global financial
growth in 2016 crisis. Low commodity prices, such as for coal and CPO, hit the demand for new HE,
resulting in a 44% contraction in annual sales volume for Komatsu HE (the market leader
in Indonesia). Furthermore, the soft economic conditions also dragged down sales of trucks
and machinery, which eventually translates into low leasing demand. The leasing business
is more cyclical by nature compared to consumer financing.

Moderately higher coal Our coal price assumption for FY17 onwards is at US$65 per tonne, supported by supply
prices in 2017 and demand rebalancing following China’s intention to limit its coal production volume
as well as the stickier-than-expected Chinese coal demand in the short- to medium-term.
Besides the China coal production cut, coal restocking for the 4Q16 winter season provided
a short-term cushion for coal prices.

A recovery is in sight, While the coal price benchmark rose by more than 25% in the 2016 second half, we
but we are not overly believe it was more due to supply disruption rather than demand improvement. We have
bullish on the coal price not seen any structural improvement in demand from key importers like China, beyond the
outlook upcoming capacity under construction. Beyond 2016, we believe the supply and demand
situation is improving, even though a structural supply and demand recovery is not in sight
yet. The higher coal price trend of late is not expected to translate into a full-fledged coal
price recovery cycle.

Diagram 35. Newcastle coal price trend and forecast (US$/tonne)

Source: Bloomberg Finance L.P., DBS Bank

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Diagram 36. Leasing: Hampered by low commodity prices

Note: HE sales as of 3Q16; the latest data available is as at August 2016; subsequently reclassified
Source: Companies, OJK, DBS Bank

Demand for HE leasing The leasing business is highly dependent on HE volume, which in turn depends on commodity
should recover prices. We expect the improvement in HE sales to come from higher demand from the mining
and construction sectors. With a recovery in commodity prices, we should at least expect the
leasing business of the multi-finance companies to stop sliding.
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Key Players and Market

Position

W
ho’s who in the Indonesian multi-finance industry? The industry is very
fragmented. As mentioned above, there are a total of 201 multi-finance
companies, with the top 20 companies commanding 65% (financing)
market share. As we profile all the multi-finance companies in the industry
by business type and ownership, we will focus on the top companies to analyse their
strategies and profitability. We will also narrow our analysis on the multi-finance companies
by focusing on consumer financing, which forms the bulk of their business.

Fragmented market The industry is fragmented and each company caters to its own niche. The top 20 multi-
finance companies have a combined market share of 65%. Each of them caters to its own
niche by specialising in several categories such as product finance (4W, 2W, HE, etc.) and
geographical reach. The biggest player, ASDF, only has 8% market share, marginally higher
among the top four companies. Some multi-finance companies invest in a huge branch
network, such as BFIN (204 branches) and ADMF (201), for local presence and to gain local
knowledge in specific geographical areas.

Synergy with banks Multi-finance companies are typically owned by banks (both domestic and foreign), brand-
and automotive players holding sole agents (ATPM) of cars and foreign principals of car makers (e.g. Astra), and a
few are family/individual-owned. The strong multi-finance companies are those affiliated
to banks or car makers and ATPMs. ATPMs seek to team up with multi-finance companies
to support their sales. Some ATPMs have their own financing companies. The Astra Group,
which is the ATPM for Toyota, Daihatsu and Isuzu cars and Honda motorcycles, has Astra
Sedaya Finance, Toyota Astra Finance for 4W financing and Federal International Finance
for 2W financing. The Indomobil Group also has its own financing firms – Indomobil
Finance Indonesia for 4W financing and Suzuki Finance Indonesia for 2W financing.
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Diagram 37. Multi-finance companies: Market share of top 20 players

Note: Based on outstanding balance sheet net receivable; data represent 2015 numbers
Source: Infobank, OJK, DBS Bank

Diagram 38. Multi-finance companies: Breakdown by business type

Note: Others include leasing, factoring, and multi-purpose financing; data represent 2015 numbers
Source: Company annual reports and websites, DBS Bank
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Diagram 39. Multi-finance companies: Breakdown by ownership

Source: DBS Bank

Top players have better Compared to banks, multi-finance companies generate better returns. Generally, the
profitability metrics major multi-finance players record higher returns on equity (ROE) and returns on assets
than banks (ROA), as the benefits of higher asset yield outweigh the negatives of the higher cost of
funds, operating cost and credit cost. The higher asset yield is due to the ability to tap the
unbankable market, an advantage that banks lack. But it requires vast infrastructure to
tap into this market, while the high credit cost is due to the high risk profile of customers.

Diagram 40. Multi-finance companies versus banks: ROE

Note: Data represent 2015 numbers

Source: Infobank, OJK, BI, DBS Bank
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Diagram 41. Multi-finance companies versus banks: ROA

Notes: Data represent 2015 numbers

Source: Infobank, OJK, BI, DBS Bank

Diagram 42. Multi-finance companies in comparison with banks

Multi-finance Companies Banks

NIM 12.90% 7.14%

Credit Cost 2.89% 1.64%

Opex/loan 8.00% 3.60%

NPL 1.11% 2.18%

(All ratios use an average three years of data for the banks and multi-finance companies covered in this report)
Note: Data represent 2016 numbers
Source: OJK, BI, DBS Bank

Leveraging on banks’ Multi-finance companies, especially those related to banks, often use joint financing to
balance sheets through enhance returns and therefore ROE. That explains why BCA Finance (BCAF), MTF and
joint financing to ADMF can offer lower effective loan rates for their products but can still enjoy astronomical
enhance ROE asset yields and ROEs. This is the key benefit of having a bank as a shareholder; as the multi-
finance company can use the bank’s balance sheet to grow more aggressively and achieve
a higher ROE. Automotive-related companies also can use joint financing/channelling but
the portion is usually smaller. For example, take ASDF – comparatively, it does not have a
significant joint financing portion for its managed receivables and has a relatively low asset
yield and ROE.
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Diagram 43. Multi-finance companies: Top 20 players (by asset size) – 2015

Company Asset 2015 Financing Liabilities Equity 2015 Gearing Major Product ROE Number
(Rp bn) 2015 (Rp bn) 2015 (Rp bn) Ratio Financed of
(Rp bn) Branches
Astra Sedaya
30,392 27,542 24,699 5,693 4.34 4W% 18.10% 61
Finance
Central Java
29,880 24,425 24,088 5,792 4.31 Power Plant 25.30% N/A
Power
Federal
International 28,734 25,962 23,011 5,723 4.02 2W% 29.20% 169
Finance
Adira Dinamika
27,744 24,919 23,383 4,361 5.36 4W, 2W 15.80% 654
Multi Finance
Oto Multiartha 22,288 19,717 17,301 4,986 3.25 4W 8.30% 72
Toyota Astra
Financial 17,804 15,986 15,548 2,256 7.17 4W 15.10% 27
Services
Dipo Star
14,304 11,967 12,087 2,216 4.74 4W 20.90% 31
Finance
BFI Finance
11,770 9,898 7,751 4,019 1.93 Multipurpose 17.00% 204
Indonesia
Summit Oto
10,575 9,120 6,655 3,920 1.73 2W 6.10% 133
Finance
Mandiri Tunas
9,203 8,482 8,030 1,173 6.55 4W 29.60% 88
Finance
Indomobil
Finance 8,913 8,085 7,597 1,316 4.9 4W, 2W 6.40% 80
Indonesia
Bussan Auto
8,880 7,566 7,276 1,604 5.07 4W, 2W 0.20% 188
Finance
BCA Finance 6,824 5,707 4,634 2,190 2.12 4W 56.20% 60
Orix Indonesia
6,727 4,950 4,533 2,194 2.11 4W, 2W, HE 9.90% 10
Finance
Surya Artha
Nusantara 6,693 5,260 5,285 1,408 3.66 HE 7.90% 15
Finance
Clipan Finance 6,647 6,430 3,048 3,599 0.85 4W 8.40% 45
CIMB Niaga
6,438 5,903 5,459 979 5.73 4W, 2W, HE 8.60% 68
Auto Finance
Mitsui Leasing
Capital 5,910 5,638 4,860 1,051 4.78 4W, HE 7.00% 15
Indonesia
Wahana
Ottomitra 5,306 4,190 4,451 856 6.02 2W 2.20% 99
Multiartha
Mitra Pinasthika
5,240 4,671 3,548 1,692 2.19 4W, 2W, HE 1.30% 91
Mustika Finance

Notes: Data represent 2015 numbers

Source: Infobank, OJK, BI, DBS Bank
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Diagram 44. Multi-finance companies: Top 2 shareholders of the top 20 players

Company Shareholder 1 Shareholder 2

Astra Sedaya
PT Astra International 75% PT Bank Permata Tbk.25%
Finance
Central Java Summit Power Capital Limited (UK)
Summit Power Global Management I B.V (Netherlands) 25%
Power 50%
Federal
International PT Astra International, Tbk. 99.99% PT Asrya Kharisma 0.01%
Finance
Adira Dinamika PT Bank Danamon Indonesia
Mega Value Profit Limited 17.42%
Multi Finance 75.00%
Oto Multiartha Sumitomo Corporation 85% PT Sumitomo Indonesia 10%
Toyota Astra
Financial PT Astra International 50%; Toyota Financial Services Corporation 50%
Services
Dipo Star MC Automobile Holding Asia B.V.
PT MC Auto Consulting Indonesia 10%
Finance 85%
BFI Finance Trinugraha Capital & Co SCA
Lainnya 55.90%
Indonesia 44.10%
Summit Oto
Sumitomo Corporation 85.00% PT Sumitomo Indonesia 10.00%
Finance
Mandiri Tunas
Bank Mandiri 51% PT Tunas Mobilindo Parama 49%
Finance
Indomobil
PT Indomobil Sukses International,
Finance PT IMG Sejahtera Langgeng 0.125%
Tbk. 99.875%
Indonesia
Bussan Auto
Mitsui & Co., Ltd Japan 58.33% Yamaha Motor Co.,Ltd Japan 17.67%
Finance
BCA Finance PT Bank Central Asia Tbk. 99.58% PT Bank Central Asia Tbk. 99.58%
Orix Indonesia
Orix Corporation 96.02% Yayasan Kesejahteraan Karyawan BI 3.98%
Finance
Surya Artha
Nusantara PT Sedaya Multi Investama 60% Marubeni Corporation, Jepang 35%
Finance
PT Bank Pan Indonesia, Tbk.
Clipan Finance Public 45.65%
54.35%
CIMB Niaga
PT Bank CIMB Niaga Tbk. 99.94 -
Auto Finance
Mitsui Leasing
Capital JA Mitsui Leasing, Ltd. 85% PT Matahari Artha Nusantara 15%
Indonesia
Wahana
PT Bank Internasional Indonesia
Ottomitra PT Wahana Makmur Sejati 17.59%
62.00%
Multiartha Tbk
Mitra Pinasthika PT Mitra Pinasthika Mustika Tbk
JACCS Co, Ltd 40.00%
Mustika Finance 59.99%

Notes: Data represent 2015 numbers

Source: Infobank, OJK, BI, DBS Bank
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Diagram 45. Multi-finance companies: Joint-financing arrangements

Joint- Joint-financing Partner Joint- Joint-financing Effective Interest Yield on ROA FY16
financing & financing Portion Rate Offered Consumer (%)
Channelling Facility Agreement Financing
Portion* Amount (bn) FY16
BCA
79% Bank BCA n.a 95% 7% - 27% 35% 14%
Finance
Mandiri 14,1%- 4W
Tunas 64% Bank Mandiri 20,500 99% 21.8% 2W 20% 2.90%
Finance 15.5% - Others
TAFS Unlimited 70%-99%

PT Bank Permata Tbk 6,100 90%-99%

PT Bank Permata Tbk -

3,000 90%-99%
Syariah
PT Bank Commonwealth 3,000 70%-99%
PT Bank CIMB Niaga 2,500 70%-99%
FIF 16% 25.1% - 42.6% 28% 6.10%
PT Bank CIMB Niaga -
3,000 90%-99%
Syariah
PT Surya Artha Nusantara
2,000 70%-99%
Finance
PT Bank Sahabat Keluarga 1,000 70%-99%
PT Astra Sedaya Finance 300 70%-99%
PT Bank Panin Syariah 500 90%-99%
PT Bank Permata Tbk 10,700 90%
PT Bank Commonwealth 2,000 90%
PT Sahabat Finansial
ASDF 22% 1,000 90% 7.1% - 29.6% 16% 3%
Keluarga
PT Bank CIMB Niaga Tbk 1,000 90%
PT Bank OCBC NISP Tbk 500 90%
PT Bank Danamon n.a 99% 17%-22% - 4W
ADMF 40% 24% 3.70%
PT Bank Commonwealth n.a 99% 33% - 41% - 2W
PT Bank Rakyat Indonesia 600 Channeling 16% – 21%- 4W
PT Bank Mandiri Tbk 500 95% 38%-41% - 2W
BFIN 18% 21% 6.30%
PT Bank Maybank
0.5 95% 14%-18% - Prop.
Indonesia Tbk
CFIN 3% PT Bank Pan Indonesia Tbk 2,000 Channeling 17.20% 16% 3.10%
* Percentage of managed receivables, gross of unearned interest
Source: Annual reports, DBS Bank

4W Market Space
Dominated by ASDF and We note that the top six players that dominate this segment have 77% of the estimated new
bank-backed parentage 4W financing market in terms of units financed. ASDF is the market leader in this segment,
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thanks to the backing of its automotive distributor and parent bank, Bank Permata. In terms
of nominal value of new financing, however, BCAF is the market leader with IDR30.7t
new bookings in FY16 (including joint financing), thanks to its strong consumer banking
franchise, which enables it to tap into customers in the affluent class segment.

Diagram 46. Top 4W players: Market share in terms of units financed

Assuming 70% of new 4W domestic sales are using financing

Source: Companies, DBS Bank

Diagram 47. Top 4W players: New bookings for new 4W in 2016

*Data for Oto Multiarta (OTO M) is a management target in 2016

** Data for BCAF is an estimation based on disclosed market share
Source: Companies, DBS Bank
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Diagram 48. Top 4W players: Market share movement

Source: Companies, DBS Bank

2W Market Space
2W market dominated We see three dominant players in the new 2W financing segment – led by Federal
by Federal International International Finance (FIF), ADMF, and WOM Finance (WOMF). In the past five years, we
Finance and ADMF note that FIF has consistently been increasing market share, supported by Honda’s strong
performance. We understand that nearly half of Honda’s sales are financed through FIF.
Honda saw its market share rise gradually to 74% in FY16 from 58% five years ago – this
has been the main driver for FIF’s strong performance.
Diagram 49. Top 2W players: Market share movement

Notes: Assuming 70% of new 2W sales are using financing. WOMF number for 2016 using annualised 9M16 number.
Source: Companies, DBS Bank
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Diagram 50. Top 2W players: Market share in 2016

Notes: Assuming 70% of new 2W sales are using financing.

WOMF number for 2016 using annualised 9M16 number.
Source: Companies, DBS Bank

Diagram 51. Top 2W players: Market share of 2W brands

Source: Gaikindo

The top six players that dominate the 4W financing

market segment have 77% market share, in terms of
units financed
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Regulatory Framework for

Multi-Finance Companies

M
Regulated by OJK ulti-finance companies are licensed to offer a range of services, including leasing,
consumer financing, credit card financing and factoring. These companies target
the financing needs of lower-income households. But, unlike banks, they are
not allowed to accept deposits. Similar to banks, multi-finance companies are
governed by OJK, the regulatory arm of the Ministry of Finance. Prior to the formation of OJK
in 2011, multi-finance companies were under the purview of Bapepam (Indonesian Capital
Market and Financial Institution Supervisory Agency).

OJK issued regulation 28/POJK.05/2014 governing the licensing and the institution of multi-
finance companies. The main takeaways from the regulation include:

Steps to incorporate a multi-finance company:

• Establishment of Limited Liability Company. A limited liability company is the most

common legal entity for a multi-finance company in Indonesia. For further details
on establishing a limited liability company, please refer to the Indonesian Investment
Coordinating Board (Badan Koordinasi Penanaman Modal) website http://www.bkpm.
go.id/en/investment-procedures

• Obtain licence from OJK. The directors need to obtain a licence from OJK. The proposal
needs to follow the correct format and have attached all the documents required in
accordance with 28/POJK.05/2014.

• Fit and proper test for the directors and commissioners.

• OJK will decide in 30 days or less after all the documents have been submitted properly. If OJK
perceives the documents to be incomplete, OJK will notify the applicant in 20 days or less.

• Companies that already have obtained the licence must start the business in two months
or less.
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Capital requirements:

• Minimum paid-up capital of IDR100b (USD7.5m) for a limited liability entity.

• Maximum foreign ownership is 85% of paid-up capital.

• For publicly listed entity: Maximum floating shares of 85%. Local ownership needs to be
maintained at a minimum level of 15% of the non-listed shares.

Foreign labour restriction:

• Companies can only hire a non-Indonesian employee as a consultant, advisor or high-

ranked official (director or one level below director).

Membership requirement in other organisations:

• Multi-finance companies must become members of the appointed credit bureau.

• Multi-finance companies must become members of the appointed association.

Credit bureau:

• Multi-finance companies can subscribe to credit history data for customers from Bank
Indonesia (BI checking) and Pefindo (private credit rating agency/credit bureau).

• Multi-finance companies can also retrieve information on blacklisted customers from the
relevant association (Asosiasi Perusahaan Pembiayaan Indonesia).

Mergers and acquisitions:

• OJK defines controlling shareholder as a person or entity with 25% or higher ownership
or proven to have been controlling the company directly or indirectly.

• Approval from OJK must be obtained before a change in controlling shareholder.

Acquisition cost for • By releasing regulation SE OJK No.1/seojk.05/2016, OJK has capped the acquisition cost
new 4W dealership (commission paid to the dealer in percentage terms of the revenue from one customer)
at 15%.

• Regulators also capped the acquisition cost for 2W financing at 20%, based on our checks
with industry players.
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Regulations/restrictions OJK also stipulates the conduct of a multi-finance company. The table below summarises
in operating a multi- the requirements/restrictions:
finance company
Diagram 52. Regulations/restrictions for operating a multi-finance company

Requirement/restrictions under POJK No 29/POJK.05/2014

Non Performing Financing max 5%

Financing to Asset Ratio min 40%

Minimum Equity Rp 100bn

Gearing Ratio max 10%

Foreign currency liabilities must be fully hedged

Cannot gather deposits directly from customers

Source: OJK, DBS Bank

NPL classification Multi-finance companies started to implement an NPL classification that is similar to that for
similar to banks now banks (NPL being loans 90 days past due), effective January 2016. This was also reflected
in the September 2016 NPL figures, which jumped to 3.4% from 2.2% in August 2016
(refer to the earlier section on page 16). However, there are still deviations for the write-off
policies, depending on the level of conservatism.

Collection and write- Multi-finance companies may implement different collection and write-off policies. ADMF,
off policies may for example, implements a 210-day automatic write-off policy while MTF implements 180
vary; provisions are days. Provisioning, however, is more regulated. The companies need to set aside 100%
regulated provisioning after 180 days overdue.

LTV regulation for auto
financing
The loan-to-value (LTV) regulation has been an effective tool that is often used by OJK to
manage the multi-finance industry. Prior to 2013, there were no LTV criteria instituted for
multi-finance companies. Despite that, there were some multi-finance companies which
were more prudent than others and had their own criteria. During the boom times for 2W
and 4W sales in 2010 to 2013, some multi-finance companies gave out financing without
any down payment requirement.

In 2015, OJK relaxed the stringent LTV regulation to stimulate the sluggish economic
growth. OJK further relaxed the minimum down payment requirement in May 2016 by
issuing circular letter OJK NO.47/SEOJK.05/2016. With the new regulation, the minimum
down payment was relaxed to as low as 5% for multi-finance companies with NPLs lower
than 1%. This is a significant relaxation compared with the previous regulation, which
required 15-20% down payment.
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Diagram 53. Multi-finance companies: Minimum down payment regulation changes

Current Regulation Previous Regulation

NPF ≤ 5% NPF>5% For Before

Syariah June
NPF ≤ 1%<NPF 3%<NPF NPF ≤ NPF Entity 2015
Vehicle 1% ≤3% ≤5% 5%* >5% Conv. Syariah Conv. Syariah

2W 5% 10% 15% 15% 20% 15% 10% 20% 15% 15% 20%

4W -
5% 10% 15% 15% 20% 15% 15% 20% 20% 15% 20%
Productive
4W -
5% 10% 15% 20% 25% 20% 20% 25% 25% 20% 25%
Consumtive

Source: OJK, DBS Bank

*For companies which do not meet the minimum financial health indicators

Diagram 54. Regulatory framework for multi-finance companies

KYC Tax Provisions related to FC OJK Fee

PMK 30/PMK.010/2010 POJK 3/POJK.02/2014

PER-05/BL/2011 SEOJK 4/SEOJK.02/2014

Risk Assessment
Customer Protection
OJK 10/POJK.05/2014
POJK 1/POJK.07/2013
Multi SEOJK 11/SEOJK.05/2014
Finance
POJK 1/POJK.07/2014
Company
SEOJK 1/SEOJK.07/2014
Financial Conglomeration
SEOJK 2/SEOJK.07/2014
SEOJK 12/SEOJK.07/2014
POJK 17/POJK.03/2013
SEOJK 13/SEOJK.07/2014
SEOJK 18/SEOJK.03/2013
SEOJK 14/SEOJK.07/2014

Business

Monthly Report Fit & Proper POJK 28/POJK.05/2014

POJK 29/POJK.05/2014
POJK 3/POJK.05/2013 POJK 4/POJK.05/2013 POJK 30/POJK.05/2014
SEOJK 6/SEOJK.05/2013 SEOJK 3/SEOJK.05/2014 POJK 31/POJK.05/2014

Source: Indonesian Multi-finance Companies Association (Asosiasi Perusahaan Pembiayaan Indonesia)

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Diagram 55. How regulatory changes affected financing growth in the multi-finance industry

Source: BI, OJK, DBS Bank

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Moving Forward

T
The gap in regulatory, he regulators have been proactively issuing supportive regulations for multi-
supervisory and finance companies. Recently, OJK has pushed for multi-finance companies to
corporate governance adopt NPL recognition and provisioning policies that are similar to banks’. Going
will narrow forward, we would not discount the possibility of the introduction of more
uniformed regulations vis-à-vis banks, including capital requirements.

Multi-finance We highlight that multi-finance companies generally have riskier business models as well
companies can as governance issues. Furthermore, there are also views that multi-finance companies can
continue to enjoy niche still enjoy their current niche position because the banks are still getting good margins
position from the bigger ticket size loans. This means that the banks (without any multi-finance
companies as subsidiaries or associates) could decide to enter the financing business if
they want to.

Key risks for the sector Weakening automotive business and lower commodity prices. A spike in inflation can
also erode the purchasing power of middle- to low-income earners who are the main
customers of multi-finance companies.
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Disclaimers and Important Notices

The information herein is published by DBS Bank Ltd

(the “Company”). It is based on information obtained
from sources believed to be reliable, but the Company
does not make any representation or warranty, express
or implied, as to its accuracy, completeness, timeliness
or correctness for any particular purpose. Opinions
expressed are subject to change without notice. Any
recommendation contained herein does not have
regard to the specific investment objectives, financial
situation and the particular needs of any specific
addressee.

The information herein is published for the information

of addressees only and is not to be taken in substitution
for the exercise of judgement by addressees, who
should obtain separate legal or financial advice. The
Company, or any of its related companies or any
individuals connected with the group accepts no
liability for any direct, special, indirect, consequential,
incidental damages or any other loss or damages of
any kind arising from any use of the information herein
(including any error, omission or misstatement herein,
negligent or otherwise) or further communication
thereof, even if the Company or any other person has
been advised of the possibility thereof.

The information herein is not to be construed as an offer

or a solicitation of an offer to buy or sell any securities,
futures, options or other financial instruments or
to provide any investment advice or services. The
Company and its associates, their directors, officers
and/or employees may have positions or other interests
in, and may effect transactions in securities mentioned
herein and may also perform or seek to perform
broking, investment banking and other banking or
financial services for these companies.

The information herein is not intended for distribution

to, or use by, any person or entity in any jurisdiction
or country where such distribution or use would be
contrary to law or regulation.
 Living, Breathing Asia

www.dbs.com