Karachi January 18 2022: Car financing in Pakistan soared to an all-time high of PKR 354 billion as of December 2021 despite increase in policy rate by 275 bps and regulatory tightening, as the latest data released by the State Bank of Pakistan.
Contrary to the usual trend in December, this time around car sales in December 2021 recorded a sharp growth of 96 percent to 27,331 units compared to the same period of previous year in anticipation of increase in car prices due to taxation measures.
This is despite SBP efforts to curb the financing. The State Bank of Pakistan (SBP) had revised Prudential Regulations (PRS) for Consumer Financing last month.
During the month of December 2021, car loans witnessed an increase of 37.9 percent or PKR 98 billion year-on-year basis from PKR 256 billion, mainly due to lower interest rates till September 2021 and growth oriented government policies.
On month on month basis, car loans also increased by 1.3 percent or PKR 4.5 billion. Increase in car loans during the month of December 2021 is more than that in November 2021 by PKR 1.0 billion or 30 percent. However, during the last two months increase in car loans was much smaller compared with annual monthly average increase of PKR 8,104 billion in 2021.
This targeted step was taken to moderate demand growth in the economy, leading to slower import growth and thus supporting the balance-of-payments. The changes in the PRs effectively prohibit financing for imported vehicles, and tighten regulatory requirements for financing of domestically manufactured/ assembled vehicles of more than 1000 cc engine capacity and other Consumer Finance facilities like personal loans and credit cards.
Following changes were made in this regard:
- Maximum tenure of auto finance has been reduced from seven (7) to five (5) years;
- Maximum tenure of personal loan has been reduced from five (5) to four (4) years
- Maximum debt-burden ratio, allowed to a borrower, has been decreased from 50 to 40 percent;
- Overall auto financing limits availed by one person from all banks/DFIs, in aggregate, will not exceed Rs3,000,000, at any point in time.
- Minimum down payment for auto financing has been increased from 15 percent to 30 percent.
With the objective to protect lower to middle income category purchases, these new regulations are not applicable to locally manufactured or assembled vehicles of up to 1,000 cc engine capacity. They are also not applicable to locally manufactured electric vehicles to promote use of clean energy. The financing of these two categories of vehicles will continue to be governed by previous set of regulations.