On the eve of 11th edition of NADA Auto Show, Himalayan Bank Limited  launched an auto-loan product with 6.5 percent interest rate, financing of up to 80 percent of the total cost of vehicle and with a repayment period of 8 years. The bank has also decreased the service charge to 0.25 percent on the total loan.

Similarly, on Sunday Global IME Bank and Arun Intercontinental Traders, the authorized distributer of Suzuki Motors in Nepal, signed a memorandum of understanding whereby the former would offer up to 80 percent of financing on entire products of Suzuki Motors and with a repayment period of 7 years.

Such offers from the leading players in the banking industry signify the priority given by commercial banks to automobile loan.The automobile market would not have been as energetic as it is today if banks and financial institutions (BFIs) were not eager to lend in that area. The high level of liquidity with banks has encouraged them come up with various automobile loans products.Besides, the lower interest rates offered by BFIs have given additional boost to the auto market.

With changing lifestyles and the continual expansion of the road network, mainly in the Kathmandu Valley and major cities across the country, the demand for private vehicleshas been escalating year by year. On top of that, eagerness showed by BFIs to provide loans has further fueled the growth in theautomobile industry.

According to bankers, excess liquidity within the banking industry, lack of ample lending avenues and relatively short tenure of loan are the major reason behind the banking industry’s attraction towards automobile financing.

“Besides, investment in automobiles is short-term lending and there is relatively low risk and we can easily track the borrower,” said Diwakar Poudel, head brand, market and corporate affairs at Standard Chartered Bank Nepal (SCBN).“We basically target people with stable fixed income, as well as companies with a decent income source.”Automobile financing accounts for around 15 percent of total retail lending by SCBN.Also, automobile financing is considered relatively less risky as repayment in done through equal monthly installment and there is equity investment of 20 to 30 percent by the borrower, Poudel added.

Automobile dealers also said the BFIs’ growing interest in automobile financing has been instrumental in the ever increasing sales of the private vehicles. “Easy financing access offered by BFIs has definitely boosted our sales,” said AnjanShrestha, president of Nepal Automobile Dealers’ Association.

Banking industry’s keen interest in automobile financing has been reflected in the interest rate offered while extending automobile lending. SCBN has offered attractive interest rate of 6.2 percent and is financing up to 80 percent of the cost of vehicles. “Basically the interest rate is market driven,” said Poudel. “The competition is very high in auto financing due large number of players offering attractive interest rate. So, BFIs are forced to offer lower interest rate.”

Apart from easy financing and low interest rates, BFIs have increased the repayment period of the auto loan. Such relaxation in repayment period has also contributed towards growth of sales. Earlier most of the BFIs were providing repayment period of 5 years. But most of the BFIs have increased the period by 2 to 3 years. “Our research showed that even after 5 years, the automobile has a good resale value. So, there is not much risk in increasing the payment period,” said Anil Shah, CEO of Mega Bank Nepal.