EonCap Islamic to focus on car financing sector

By Sumathi Wong
EonCap Islamic Bank Bhd (EonCap Islamic) is not perturbed that its car financing sector remains the biggest contributor to its financing portfolio despite falling car sales due to the contracting economy.
The wholly-owned subsidiary of EON Bank Bhd is confident of its car financing segment in view of low non-performing rates (NPR) and a good mix of cars under financing.
"We do see a slowdown, but it is fine. Our non-performing loans ratio is fantastic. In fact, we are below average on the industry's non-performing loans. We are at about 2%," EonCap Islamic CEO Fozia Amanulla told The Malaysian Reserve in a recent interview.
She was responding to a question on whether management was concerned that the economic contraction would cause a potential slowdown in its financing front as car financing is a major component in its portfolio.
For the year ended Dec 31, 2007, EonCap Islamic's financing and advances totalled RM4.69 billion, with RM1.60 billion, or 34%, coming from its car financing portfolio.
EonCap Islamic provides Shariah-compliant motor vehicle financing called Hire Purchase-i (Auto Aitab). The underlying contract is based on the Shariah principle of Al-Ijarah Thumma Al-Bai (Aitab).
Fozia said that 75% of its total financing portfolio is derived from retail financing while the remaining 25% comes from corporate or commercial financing.
On the impact of fewer new cars hitting the roads due to the slowdown, she said that while business has generally slowed down, it has not impacted EonCap Islamic as it is not only involved in the local car industry, but also covers foreign makes such as Mercedes and BMW.
For the first four months of 2009, total passenger and commercial vehicles sold were 159,816, or close to 12% lower than the corresponding period last year, according to the Malaysian Automotive Association (MAA) figures. Sales volume in April 2009 was 3,070 units, or 7% lower than the previous month.
For the whole of 2008, Malaysian car dealers sold 548,115 passenger and commercial vehicles, or 12.5% more than the year before. Fozia said that there is no cause for alarm in having too much of Auto-Aitab in its portfolio as it is a form of personal financing spread out over a large pool.
"It is unlike a (large) corporate loan... when they default, you are in deep trouble. Retail financing is more of a safer bet and our average NPL is very low. So there is no concern.
"Perhaps the idea is to grow other segments rather than to slow down on Auto-Aitab. Aitab is something which we are still growing. We are coming up with different packages, different financing schemes and going into highend motorbike financing," she said.
Fozia said EonCap Islamic does not do second-hand car financing as the bank is focusing on new cars. "There are a lot more issues when you go into secondhand car financing. We have just not gone into that simply because our new car financing portfolio is big," she said.

(This story appeared in The Malaysian Reserve on June 8, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)