Banks launch a loan program for car dealers for purchases abroad
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Banks are launching specialized loan products for car dealers to make it easier for them to purchase new cars from friendly countries, primarily China. The associated risks for banks—the lack of collateral at the time of concluding the contract and working with foreign jurisdictions—are offset by increased rates. But for automakers, the risks of sanctions pressure remain.
Otkritie Auto (the auto business unit of Otkritie FC Bank) is launching a dealer financing program “Multi-brand with advance payment.” In particular, they will be provided with revolving credit lines for the purchase of cars from manufacturing plants in friendly countries. Kommersant was told about this by a credit institution. Now the technological chain is being tested in test mode – from the application to the issuance of a loan, they say at Otkritie Auto.
There are already requests from clients for several billion rubles, said Anna Gordeeva, head of the department for working with corporate clients of the auto business at FC Otkritie.
The bank expects that in 2024 the size of the limits will be measured in tens of billions of rubles.
The diagram looks like this. First, the dealer advances the production of the vehicle in a friendly country in the amount of 20% of the cost. Once the vehicle is assigned a VIN, the dealer is given a credit to pay for the remainder of the vehicle. Financing is available for 18 months, the limit must be selected within 12 months.
After completing customs procedures and receiving an electronic vehicle passport (EPTS), the bank sends a notification of its pledge to the registry and reduces the interest rate on the corresponding tranche. The pledge in favor of the bank is terminated after full repayment of the tranche. Dealers will be able to pay monthly only interest, and payment of the principal debt must begin six months from the date of issuance of the tranche or within five calendar days from the date of sale of the car to third parties.
The bank does not disclose rates under the program for car dealers. However, inevitable risks will be included in the loan rate and, as a result, in the final price for the consumer, market participants are confident.
“There is no collateral at the moment, production is located in another state, legislation is constantly subject to changes, including those related to restrictions,” explains Anna Gordeeva.
Risks for the bank can be reduced by an increased rate, insurance and additional comfortable security, but first of all, by proper structuring and control of cash flows, says Vladislav Monov, Managing Director for Corporate Lending at Sovcombank. Earlier this year, the bank also launched a special product for car dealers to finance the purchase of cars, including from the manufacturer. The parameters and results of the program were not disclosed at Sovcombank.
“In the current situation, more working capital is needed to run a business, taking into account the cost of cars and the departure of captive banks. This will increase the number of cars at dealers. There will also be an opportunity to pay for cars for delivery, as Chinese importers demand,” points out Andrei Olkhovsky, general director of Avtodom Group of Companies.
The rate on such loans is usually calculated using the formula “key rate plus spread,” notes a market participant. “If the spread is more than 5 percentage points, not everyone will be interested in the offer. But in general, the program can be useful for medium and small dealers who cannot attract cheaper money from banks,” says Renat Tyukteev, Deputy General Director of Avilon AG.
However, this method of financing will not help eliminate sanctions risks, lawyers warn.
Pawning a car after going through customs procedures can be regarded as an attempt to hide the beneficiary and assist in circumventing sanctions restrictions, notes Kira Vinokurova, co-head of the sanctions law and compliance practice at Pen & Paper. In addition, cars are among goods whose export to Russia is controlled by Western jurisdictions. Therefore, according to the lawyer, “US export control rules apply not only to cars manufactured in this country, but also to cars manufactured in third countries using US technology or spare parts.”
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