Indonesia’s auto market is expected to see a sharp slowdown over the next few months, with lenders refusing to take on large volumes of loans, according to a new report.
“We are going to see an immediate and severe decline in the number of new auto loans being issued,” said Arash Farooq, a finance expert at the Jakarta-based consulting firm International Financial Management.
“It is not going to be a very good situation in the long term.
It is going to become a nightmare.”
While the number one reason for loans failing in Indonesia is low creditworthiness, the government has said that it is not a driver of the slowdown.
The number of outstanding loans, however, is rising as consumers continue to spend on cars, fuelling a surge in demand.
A large number of Indonesians who are willing to spend up to $1 million (2.5 million euros) on new vehicles is one reason the country is already the world’s largest auto market.
The total market for new cars and SUVs is estimated at nearly $2.8 trillion.
“The government wants to stimulate the economy but the market is not ready for that,” Mr Farooqu said.
In the last two years, the country’s economy has grown by an average of 5.7% per year.
However, it has also contracted by 2.7%.
It is also facing a crisis in its public transport network and its health system, which has seen the number and severity of serious and preventable accidents soar.
“People are not willing to invest so they can’t spend money on new cars,” said Mr Faroqu.
“They are spending it on petrol.”
The latest reports from the National Insurance and Statistics Authority show that the share of loans made by consumers has fallen from 40% in 2012 to 30% in 2017.
This is partly because the number loans issued by lenders has been reduced.
However the share is still higher than in the first two years of the boom.
The country’s auto industry has been hit hard by the slowdown, which started in late 2016, and is expected in the second half of this year to hit record lows.
Many of the lenders have reduced their lending to the public, leaving it with less money to spend.
According to a study by the consulting firm ASEAN-CIS, a group of global companies which provide financial advice to businesses, there were about $1.6 billion in outstanding loans as of March 2017.
It noted that this is a fall of 10% from a year earlier.
“That is a huge drop,” Mr Arup said.
“It shows that the government is not investing in the auto market.”
The report did not give an exact figure for the number who are being turned down for a loan but the number has been falling over the past few years, from about $800 million in the summer of 2016 to $400 million in September.
It also shows that in 2017, more than a quarter of all loans were issued to consumers with an average interest rate of 5%.
In Jakarta, there is also a growing number of people who are reluctant to borrow, as they fear that the loan will not be paid back, leaving them with little cash left to buy a car.