May 2017
UAE Car Finance Market Outlook to 2021 Rising Car Finance Penetration and Multiple Car Finance Products Offered by Banks to Foster Growth
PRODUCTS MENTIONED
COMPANIES MENTIONED
• Used Car Finance
Emirates NBD, Dubai Islamic Bank,
• New Car Finance
Mashreq Bank, Emirates Islamic Bank, Al Hilal Bank, Al Wifaq Finance and Finance House
Table of Content
1. Executive Summary Market Potential Market Segmentation Trends and Issues Competitive Landscape Future Analysis And Projections 2. UAE Car Finance Market – Genesis and Overview Overview System of Down Payment Islamic and Conventional Car Finance Salient Features of the Market – Customer’s Viewpoint 3. UAE Car Finance Market Size, 2011-2016 3.1. By Credit Disbursed, 2011-2016 3.2. By Number of New Cars Financed, 2011-2016 3.3. By New Car and Used Car Finance Penetration, 2011-2016 4. UAE Car Finance Market Segmentation 4.1. By New Car and Used Car Finance, 2011-2016 4.2. By Tenure of Loan - New Car, 2016 4.3. By Tenure of Loan - Used Car, 2016 4.4. By Emirate, 2016 5. Government Regulations in UAE Car Finance Market 6. Points To Consider Before Taking Car Loan From a Bank in UAE Minimum Salary Requirement Mandatory Salary Transfer Listed and Non-Listed Employers Profit Rates and Other Charges Maximum Loan Amount and Documentation Requirements 7. Trends and Issues in UAE Car Finance Market Rising Used Cars Market Promotion for the Use of Electric Vehicles Sharia Board to Develop Standardized Islamic Financial Products Increasing Number of Expatriates Launch of Credit Bureau Falling Oil Prices 8. Product Features in UAE Car Finance (Tenure, Interest Rate and Conditions) 8.1. Mashreq Bank 8.2. Dubai Islamic Bank Al Islami Car Finance Al Islami Car Ijarah 8.3. Emirates Islamic Bank 8.4. Al Hilal Bank 8.5. Emirates NBD 8.6. Al Wifaq Finance 8.7. Finance House
Table of Content
9. Competitive Landscape 9.1. Competitive Scenario in UAE Car Finance Market Overview Conventional and Islamic Banks Rewards and Offers Down Payment and Early Settlement Fees 9.2. Major Banks and Auto Finance Companies in UAE 9.2.1. Mashreq Bank 9.2.2. Dubai Islamic Bank 9.2.3. Emirates Islamic Bank 9.2.4. Al Hilal Bank 9.2.5. Emirates NBD 9.2.6. Al Wifaq Finance 9.2.7. Finance House 10. Future Outlook and Projections For UAE Car Finance Market, 2017-2021 11. Macroeconomic Factors affecting UAE Car Finance Market 11.1. New Car Sales in UAE, 2011-2021 11.2. Consumer Expenditure in UAE, 2011-2021 14.3. Number of Bank Branches in UAE, 2011-2021 14.4. Gasoline Prices in UAE, 2011-2021 12. Research Methodology 12.1. Market Definitions 12.2. Abbreviations 12.3. Market Size And Modeling Approach – Market Sizing Market Sizing – UAE Car Finance Market Variables (Dependent and Independent) Multi Factor Based Sensitivity Model Final Conclusion Disclaimer Contact Us
LIST OF FIGURES
Figure 3-1: UAE Car Finance Market by Credit Disbursed on Car Finance in USD Million, 2011-2016 Figure 3-2: UAE Car Finance Market Size on the Basis of Number of New Cars Financed in Units, 2011-2016 Figure 3-3: UAE Car Finance Market Size by New Car and Used Car Finance Penetration in Percentage (%), 2011-2016 Figure 3-4: Average Ticket Size for New Car Finance in UAE in AED, 2011-2016 Figure 4-1: UAE Car Finance Market Segmentation by New Car and Used Car Finance on the basis of Credit Disbursed in Percentage (%), 2011-2016 Figure 4-2: UAE Car Finance Market Segmentation by Loan Tenure - New Car on the basis of Number of New Cars Financed in Percentage (%), 2016 Figure 4-3: UAE Car Finance Market Segmentation by Percentage Share of Loan Tenure Used Car on the Basis of Number of Used Cars Financed in Percentage (%), 2016 Figure 4-4: UAE Car Finance Market Segmentation by Percentage Share of Emirate on the basis of Number of New Cars Financed, 2016 Figure 6-1: Minimum Salary Requirement for Car Loans in UAE on the Basis of Number of Banks in Percentage (%), 2016 Figure 6-2: Percentage Share of Banks offering Car Loans to Customers Working for Listed and Non-listed Employers Figure 6-3: Interest Rate Charged by Different Banks on Car Loan on the Basis of Total Number of Banks in Percentage (%), 2016 Figure 6-4: Maximum Amount of Car Loan Financed on the Basis of Number of Banks in Percentage, 2016 Figure 7-1: Ratio of Non-Performing Loans to Total Gross Loans of Banks in UAE, 2011-2016 Figure 7-2: Crude Oil Price per Barrel in UAE, in AED, 2012-2016 Figure 9-1: Credit Disbursed for Vehicle Loan by Dubai Islamic Bank in AED Million, 20112016 Figure 10-1: Future Outlook and Projections for UAE Car Finance Market on the Basis of Credit Disbursed for Car Finance in USD Million, 2017-2021 Figure 11-1: New Car Sales in UAE in Units, 2011-2021 Figure 11-2: Consumer Expenditure in UAE in USD Million, 2011-2021 Figure 11-3: Number of Bank Branches in UAE, 2011-2021 Figure 11-4: Gasoline Prices in UAE (AED per Barrel), 2011-2021
Table 3-1: Rationale and Description for UAE Car Finance Market Size on the Basis of Credit Disbursed, 2011-2016 Table 3-2: Rationale and Description for UAE Car Finance Market Size by Number of New Cars Financed, 2011-2016
LIST OF TABLES
Table 3-3: Rationale and Description for UAE Car Finance Market Size by Car Finance Penetration, 2011-2016 Table 4-1: UAE Car Finance Market Segmentation by New Car and Used Car Finance on the basis of Credit Disbursed in USD Million, 2011-2016 Table 4-2: UAE Car Finance Market Segmentation by Loan Tenure - New Car on the Basis of Number of New Cars Financed, 2016 Table 4-3: UAE Car Finance Market Segmentation by Emirate on the Basis of Number of New Cars Financed, 2016 Table 4-4: Number of Banks Branches in UAE by Emirate, 2014 Table 5-1: General Terms and Conditions for Car Loan in UAE, 2012 Table 5-2: Al Etihad Credit Bureau, 2014 Table 7-1: Population of UAE by Nationality in Percentage, 2016 Table 8-1: General Product Features in UAE Car Finance Market Table 8-2: Rates Associated with Car Loans in UAE Table 8-3: Features of Car Finance by Mashreq Bank Table 8-4: Features of Al Islami Car Finance by Dubai Islamic Bank Table 8-5: Features of Al Islami Car Ijarah by Dubai Islamic Bank Table 8-6: Features of Car Finance by Emirates Islamic Bank Table 8-7: Features of Car Finance by Al Hilal Bank Table 8-8: Features of Car Finance by Emirates NBD Table 8-9: Features of Car Finance by Al Wifaq Finance Company Table 8-10: Features of Car Finance by Finance House Finance Company Table 9-1: Competitive Landscape for Mashreq Bank including Company Overview, Products and Services, Number of Employees, Number of Branches and Other Parameters Table 9-2: Competitive Landscape for Dubai Islamic Bank including Company Overview, USP, Business Strategy, Revenue, Products and Services and other Parameters Table 9-3: Competitive Landscape for Emirates Islamic Bank including Company Overview, Products and Services and other Parameters Table 9-4: Competitive Landscape for Al Hilal Bank including Company Overview, Business Strategy, Products and Services, Number of Branches, Number of Employees, Net Revenue and other Parameters Table 9-5: Schedule of Fees for Vehicle Finance in Al Hilal Bank, 2016 Table 9-6: Competitive Landscape for Emirates NBD including Company Overview, Business Strategy, Revenue, Products and Services and other Parameters Table 9-7: Schedule of Fees for Auto Loan in Emirates NBD, 2016 Table 9-8: Competitive Landscape for Al Wifaq Finance including Company Overview, Products and Services and other Parameters
Table 9-9: Competitive Landscape for Finance House including Company Overview, Products and Services and other Parameters Table 10-1: Strategic Analysis for Banks and Private Finance Companies in the Future Table 10-2: F uture Outlook for UAE Car Finance Market on the Basis of Credit Disbursed for New Car Finance, 2017-2021 Table 11-1: Rationale for New Car Sales in UAE, 2011-2021
LIST OF TABLES
Table 11-2: Rationale for Consumer Expenditure in UAE, 2011-2021 Table 11-3: Rationale for Number of Bank Branches in UAE, 2011-2021 Table 11-4: Rationale for Gasoline Prices in UAE, 2011-2021 Table 12-1: Correlation Matrix of UAE Car Finance Market Table 12-2: Regression Coefficients Output for UAE Car Finance Market
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UAE Car Finance Market
HOW CAR FINANCE MARKET IS POSITIONED IN UAE? The United Arab Emirates is the secondlargest automotive market including cars, parts and accessories, trailers and semi-trailers, trucks, public transport vehicles, and tractors in the GCC after Saudi Arabia. Passenger cars account for approximately ~% of the UAE automotive market, with commercial vehicles such as trucks, vans and buses accounting for the remaining ~%. Owing to low car prices, well constructed highways, and most importantly the low fuel prices and easy availability of car finance, owning a car is relatively easier in UAE. UAE’s financing methods are different from the conventional methods of financing. Majority of the banks and finance companies follow the Sharia system which does not include the concept of interest. Until May 2011, the customers were eligible for 100% loan on cars; a system of down payment did not exist for
car loans. In May 2011, the government, as a reform to tighten car financing, introduced the system of down payment. From then, the customers can obtain ~% of the cost as loan and ~% of the cost is mandated to be paid as down payment by them. During the review period, 2011-2016, the market has displayed a decent growth until 2015, but by the end of 2015 the market started declining. A fall in the credit disbursement had been observed during 2016 that was resulted out of the falling oil prices, increasing loan rejection rates, stringent lending policies adopted by the banks due to the piling up of non-performing loans and other such factors. However, upcoming trends such as increased demand of electric vehicles, growth of used car market and others are expected to enable the market recover in the coming years.
Figure: UAE Car Finance Market Size in Terms of Credit Disbursed in USD Million, 20112016
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UAE Car Finance Market
WHICH CAR IS FINANCED THE MOST; NEW OR USED CAR? The banks and private finance companies in UAE finances both new and used passenger and commercial cars. The major difference is in the profit rate for which the customer avails the car loan. Used car finance bears a higher profit rate compared to the new car finance. In terms of credit disbursement the market is dominated by the new car finance that held a share of ~% during 2016. A factor that majorly influences the size of credit disbursement is the price of car. The average value of a new car in UAE is AED ~ as of 2016. Time to time the banks in UAE unveils various offers for the public on new cars of certain brands with a limited validity. The offers are made in collaboration with the dealers. The number of cars sold during the period was also a factor that influenced the new car loan’s dominant position within the market. The number of cars sold in the country has always been dominated by the new cars segment. However, the used car market is expected to outperform new car sales in the next 10 years. Along with the profit rates the processing and due diligence fees for used cars are also high. The value of used cars is lesser than the value of new cars; eventually the amount of credit disbursed becomes lesser than that for new cars. The trend of buying a used luxury car is gradually picking up in UAE car market raising the value of used car purchased. This trend is expected to increase the share of used car finance in the overall amount of credit disbursed. During the review period, there had been a continuous increase in the credit disbursed for used cars. The used cars’ average cost is also increasing from time to time.
During the review period, there had been an unstable trend in the credit disbursement of new cars and fall in the growth rate of credit disbursed for used cars due to unstable economic conditions prevailing in the country. From 2014, the oil prices started falling at an alarming rate in the country which led to instability of jobs, income and other macroeconomic factors within the country. During 2016, the banks have started focusing on the consolidation of existing activities rather engaging into new lending activities due to the reducing flow of deposits and increasing rate of non-performing loans. Amidst this, the Central Bank of UAE has launched Al Etihad Credit Bureau to assess the credit worthiness of both companies as well as individuals. All the aforementioned factors have negatively influenced the credit disbursement of both new and used cars. The banks have started implementing the measures of credit bureau to assess the repaying capacity of the applicant, due to which the rejection rate in car loans have risen in 2016. Table: India Rotavators Market Segmentation by Gear Speed (Single/Multispeed and Others) on the basis of Revenue in INR Crore and Sales Volume in Units, FY’2016
Segments
New Car Finance
Used Car Finance
2011 2012 2013 2014 2015 2016
~ ~ ~ ~ ~ ~
~ ~ ~ ~ ~ ~
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UAE Car Finance Market
WHAT TENURE IS MOST PREFERRED FOR NEW CAR LOAN IN UAE?
WHAT ARE THE MAJOR TRENDS AND ISSUES IN UAE CAR FINANCE MARKET?
On the basis of number of new cars financed the tenure of new car loans in the market is dominated by three years tenure that accounted for a share of ~% during 2016. It is followed by four years tenure and two years tenure. In UAE, car finance is provided by the banks for a maximum period of five years. This applies for both new and used cars. The major factor that influences the choice of tenure by the customers is the ticket size of the car. A new car costs higher relative to used car and the installment amount to be paid by the customer would be higher in case of short tenure. Five year loan tenure held a share of ~% in the number new cars financed during 2016. Due to rising default rates in the country, banks have made the lending policy stringent than before. The repayment capacity is strictly assessed and loans for longer tenure are granted only to privilege and trusted customers. Moreover, when the tenure of loan becomes longer, the profit rates becomes higher. People do not prefer one year loan much due to the higher ticket size of the car and higher installment amount. Furthermore, if the customer has plans to re-sell the car early and upgrade to a better car, a car with lesser or no loan amount is easier to sell.
1. From the past few years, the demand for used cars is rising in the country. In 2014, the market for used cars has increased by ~% due to which it is estimated that the used car market will overtake the new car market in the next ten years. The used car market of UAE is worth nearly USD ~ billion as of 2016.
Table: UAE Car Finance Market Segmentation by Tenure of Loan - New Car, on the Basis of Number of New Cars Financed in Percentage (%), 2016
Segments
Percentage (%)
Three Years Four Years Two Years Five Years One Year
~ ~ ~ ~ ~
2. The introduction of quotas for hybrid cars in government vehicle fleets, coupled with campaigns aimed at encouraging Dubai’s motorists to switch to environment friendly cars, is expected to open up new markets for the sector. Recently, the government of Dubai has decided that, 10% of all new vehicles bought by the Dubai government will be electric cars with a motive to reduce emissions by 16%, by the end of 2020. 3. The rising rate of non-performing loans has induced the Central Bank of UAE to appoint an assessor of individual and corporate credit worthiness named Al Etihad Credit Bureau in 2014. The introduction of consumer credit data from the bureau has led to more cautious lending policies. This has increased the rejection rates of loans in the country thereby impacting the credit disbursed for car loans. 4. The banking sector in the UAE is facing deceleration in credit and deposit growth since 2015, accompanied by relatively higher credit losses that limit earning growth. This is due to the weakening macroeconomic conditions that have resulted out of the sharp decline in oil prices in the country. Banks are facing issues of low asset growth and increasing non-performing loans.
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UAE Car Finance Market
WHAT IS THE FUTURE OUTLOOK FOR UAE CAR FINANCE MARKET
UAE car finance market is highly fragmented with more than ~ players including banks and private finance companies. A tough competition is prevalent in the market between these players and they together offer more than ~ financing schemes for both used and new cars. The primary motive of these financial institutions is to offer convenient and easily repayable car loans to the public and attain reasonable profit. These players compete against each other on the basis of interest rates, schemes offered, tenure, down payment systems, terms of loan, early settlement fees, minimum salary requirements and others.
The market is expected to recover during the forecast period from the fall that was observed towards the end of the review period. It is anticipated that the car finance market in the country will grow at a CAGR of ~% during the forecast period 2017-2021. The recovery is presumed to be at a slow pace due to various factors such as low deposit rates prevailing in the market and high rate of non-performing loans compelling the banks to consolidate their existing activities rather focusing on growth. Moreover, the impact of credit reports made available by the credit bureau is expected to raise the loan rejection rates.
There are two types of banks in UAE such as conventional and Islamic banks, which offer car loans to the public on different terms, major difference being the concept of interest. Conventional banks include interest in their practices whereas Islamic bank runs on the Ijarah system under the Islamic law which promotes profit sharing system between the borrower and lender. The conventional banks are competing with each other majorly on the basis of interest rates to attract more customers.
However, a growth is expected to be observed in the market even in the midst of all the aforementioned factors, which will be supported by an increased number of bundled offerings, new innovative strategies adopted by the banks and dealers and other entities. In accordance with the current trend, the used car penetration is displaying a consistent lift. Hence, it is anticipated that a rise in the demand for used car serve as a driving force for the proliferation of car finance market.
Further, increased competition in the market has induced the banks to offer existing products in the market with additional features. Many banks follow a risk based pricing structure, wherein they reward customers who maintain a good relationship with them. Additionally, banks offer rewards and loyalty programs to attract customers in a competitive business landscape.
Figure: UAE Car Finance Market Future Projections on the Basis of Credit Disbursed in USD Million, 2017-2021
Hence, we can observe that the market is highly competitive with large number of players offering distinctive finance schemes and offers at varying terms and conditions.
USD Million
HOW THE COMPETITION IS PREVAILING IN UAE CAR FINANCE MARKET
2017
2018
2019
2020
2021
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UAE Car Finance Market
COMPANIES CITED IN THE REPORT
Companies Covered in the Report
Major Players in UAE Car Finance Market
List of Companies • Mashreq Bank • Dubai Islamic Bank • Emirates Islamic Bank • Al Hilal Bank • Emirates NBD • Al Wifaq Finance • Finance House
COMPETITIVE ANALYSIS IN THE REPORT
Parameter Company Overview Products and Services Mobile Banking Number of Branches, 2016 Number of Employees, 2016 Car Finance Car Refinance Net Operating Income, 2016 Capital Adequacy Ratio, 2016
Key Facts • • • • • • • • •
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UAE Car Finance Market
PRODUCT FEATURE ANALYSIS IN THE REPORT
Parameter Customers Minimum Salary Requirement Maximum Loan amount Tenure Loan Products Transfer of Salary Documentation Down Payment Credit Approval Validity Profit Rate and Processing Fees Early Settlement Charges Installment Deferment Charges Charges on Placement and Release of Mortgage on Car Reschedule Murabaha Facility Other Benefits
Key Facts • • • • • • • • • • • • • • •
KEY FACTORS CONSIDERED IN THE REPORT • Comprehensive analysis of UAE Car Finance Market and its segments • Listed major players and their positioning in the market • Identified major industry trends and issues in last few years and assessed the future growth of the industry • Government regulations in UAE Car Finance Market • Product features of car loan by company in UAE Car Finance Market
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