Credit Agricole Bank celebrated the arrival of summer 2019 with the unveiling of a new model branch at 6/7-а Vaclava Havela Boulevard in Kyiv specializing in auto financing. This new branch is the tenth in a series of global network modernization and innovations implementation across Ukraine. Credit Agricole’s new model branch concept is based on the bank’s “100% digital and 100% human” approach, which combines digital technologies and high expertise of employees.
While the bank offers auto financing services in all of its branches, this new dedicated flagship for the segment is located close to a number of car dealerships and has been designed especially with car loan support in mind. The opening is part of Credit Agricole’s efforts to maintain its entrenched status as the Ukrainian market leader in auto financing, a status the bank has held for many years thanks to an innovative approach, which has helped to secure a 40% market share among banks as of today.
“It is becoming harder and harder to stay number one,” says Galyna Zhukova, who, as Deputy Chairman of the Board of Credit Agricole Bank in Ukraine with responsibility for retail business and network, oversees the bank’s auto financing division. “The success we currently enjoy is not a given, it has to be earned. The competition for auto financing customers is getting tougher every year.”
Ms. Zhukova attributes the bank’s leadership position to a number of factors including a commitment to maximum service transparency, the convenience of a one-stop-shop approach to every aspect of auto financing, and the experience of over a decade on the market.
This longevity has allowed Credit Agricole Bank to develop cooperation with most of the major auto importers operating in Ukraine, while also gaining the kind of invaluable market knowledge that comes with processing tens of thousands of individual credit applications from potential new car owners. “We have the best decision-making system on the market and we continue to invest a lot of time and resources into this,” Ms. Zhukova says. “Over the past 11 years, we have processed around 80,000 applications. This provides the system with vital experience. You get to learn who is a reliable client, and who may not be so suitable.”
Ms. Zhukova characterizes the current market for new car sales as ‘disappointing’, with just 80,000 new cars sold via official dealers in 2018 and similar forecasts for the current year. This is well short of expectations widely held a few years ago, when many industry analysts and auto trade professionals anticipated a return to growth by 2019. Factors undermining the recovery of new car sales include the 2017 relaxation of restrictions on the importation of used vehicles, leading to a flood of cheap cars mostly from Central European markets and further issues over the imposition of customs duties.
Now largely resolved, this period of somewhat chaotic import deregulation hampered the growth of new car sales and came with an additional environmental cost. “Most of the used cars entering the Ukrainian market over the past few years have been third-hand rather than second-hand. They are often completely outdated models, having already made the journey from Western European markets like Germany and Switzerland to Poland and the Baltic states,” points out Ms. Zhukova. “This is not only damaging to the economy in terms of new car sales and the banking industry, but also ecologically dangerous.”
Of the 80,000 new car sales last year, 20% involved financing, whereas the proportion in more mature car markets would be closer to 40%-50%. Ms. Zhukova says although Credit Agricole’s portfolio is diverse, the bank’s core car financing clientele tend to be middle class Ukrainians, with typical loans in the UAH 500,000 to UAH 800,000 range and an average repayment timeframe of three years. Loans are set in the Ukrainian hryvnia currency, removing the uncertainties of floating exchange rates that have traditionally made some Ukrainians wary of engaging in long-term financing commitments.
The leasing market has yet to take off among private customers in Ukraine, which Ms. Zhukova believes is largely attributable to a prevailing cultural preference for ownership. “General speaking, private individuals are not yet keen on leasing. It is a matter of habit and mentality. Ukrainians prefer to own their car.” However, she anticipates that a growing leasing market will emerge in the coming years as the increasingly knowledgeable Ukrainian market become more familiar with this option and the banks themselves raise awareness about leasing services.
Ms. Zhukova expects the auto sales market climate over the coming years will remain subject to the broader political and macro-economic situation in the country. She believes if a moderately stable environment emerges following the conclusion of the current round of elections, it is reasonable to expect new car sales growth in the region of 10% to 15% per year. In an improving economy, these figures could rise even further, buoyed by a reduction in the cost of financing.
Nevertheless, there is little expectation of imminent boom times. Instead, the focus among auto financing providers is likely to fall on the fight for a limited pool of clients and the streamlining of services. “There is little sign of growth in the market at present so the priorities are optimization and simplification,” says Ms. Zhukova. “As banks compete for a limited number of clients, they will seek to increase the range of repayment options on offer, while at the same time reducing the number of papers to sign.”
This service- and convenience-based contest for customers reflects the increasingly demanding nature of the rapidly maturing Ukrainian market for financial services. “People are now much more financially educated than they were just one decade ago,” reflects Ms. Zhukova, “and Ukraine’s car loan market clientele is among the most financially educated segments of society.”