KARACHI: Major automakers expect a sharp slowdown in sales from January after the central bank tightened lending terms to bring down the spike in auto loans amid wider concerns about growing current account deficit, industry officials said.
“Auto financing has already been reduced by around 40 percent after the State Bank of Pakistan’s (SBP) restrictions,” said a senior banker. Other bankers also confirmed a steep decline between 35 percent and 40 percent in auto lending. Auto financing reached all-time high in Pakistan in September, as total auto loans extended by banks reached Rs338 billion, which was 45.5 percent higher as compared to the same period last year.
According to industry officials, number of cars purchased through auto financing are between 30 percent and 40 percent of total cars sold in the country.
Last month the SBP increased minimum down payment cap to 30 percent from 15 percent; reduced maximum auto loan repayment tenor from seven years to five years; reduced debt-burden ratio from 50 percent to 40 percent; and also limited maximum auto financing loan to Rs3 million.
These restrictions, however, don't apply on cars below 1000cc engine size.
While the central bank might take some of the heat out of auto finance, analysts said the sudden deceleration threatens car makers, dealers and the wider sector, which has been one of few growth drivers against a backdrop of stagnant exports and sluggish investment.
“The restrictions aren’t affecting smaller cars. Although 1000cc and below engine size cars are sold in higher numbers, the bigger share in the total auto sales in the country are held by (cars with) bigger engines,” the banker said. “It means if bigger cars get affected, it will be reflected in the total size of auto-financing.”
Auto industry said a global shortage of semiconductor chips would also dent car sales in the near-term. Shipping delays, higher freight costs were also affecting supply chain issues.
Manufacturers have already suspended booking of several cars including Cultus automatic variant, Alto VXL and Picanto automatic variant over a shortage of semiconductor chips. Mashood Khan, former chairman, Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) said the semiconductor chips shortage has been a global phenomenon following the coronavirus pandemic last year.
“We are a third world country with comparatively tiny auto sales. The countries with huge auto sales were already facing chip shortage for months.”
Analyst Arsalan Hanif at Arif Habib Limited said the supply side issues and the central bank’s restrictions depict a bleak picture for auto sales from January onwards. “But sales would not be reduced till December as companies have already taken orders.”