Auto finance in Pakistan is growing slowly due to skyrocketing car prices, shrinking consumer purchasing power and discouragement of auto finance policies put in place to alleviate the trade deficit.
As auto financing increased in November 2021, according to data from the State Bank of Pakistan, the overall credit given to consumers for vehicle purchases has slowed.
Borrowing to buy cars reached 349 billion rupees in November 2021, just 1% more than in October 2021. It is also the smallest monthly increase since July 2020.
However, auto financing jumped 42% last month year-on-year.
“The month-over-month slowdown can be attributed mainly to changes made by the State Bank of Pakistan (SBP) to prudential regulations for auto finance,” said Arif Habib Limited (AHL) analyst, Arsalan Hanif.
Speaking to The Express Tribune, he said the central bank revised prudential regulations for consumer finance through a circular.
âThe main objective of the regulatory change is to curb the growth of demand in the economy and reduce the country’s import bill in order to support the balance of payments,â he said.
This revision is not applicable to locally manufactured cars with an engine capacity of less than 1000cc and domestically manufactured electric vehicles, as the government wants to protect consumers in low and middle income categories and promote energy use. clean, he said.
On the other hand, this revision tightened regulatory requirements for cars 1000cc and larger and other consumer finance facilities such as personal loans and credit cards.
In accordance with prudential regulations, the maximum loan term has been reduced from seven years to five years while the minimum down payment for financing a vehicle has been raised from 15% to 30%.
The maximum term for personal loans has also been reduced from five to four years.
On the other hand, the maximum debt ratio for a borrower has been reduced from 50% to 40%.
The overall auto finance limit used by one person from all banks, in total, will not exceed Rs3 million at any time.
Due to the strict regulations, the number of cars sold in the country fell 11% month-on-month to 18,714 units in November 2021, according to data released by the Pakistan Automotive Manufacturers Association (Pama) earlier this month.
Posted in The Express Tribune, December 21st, 2021.