KARACHI: Despite central bank restrictions and rising interest rates, auto financing increased 0.9 percent to Rs366.79 billion in April as compared to March, according to State Bank of Pakistan (SBP) data.
The total financing amount extended by banks in the country to buy cars stood at Rs363.55 billion by the end of March this year. As compared to last year, auto financing has moved up by Rs74 from Rs293 billion in April 2021 showing an ascent of 25 percent.
Growth in auto financing has been slowing down. It had jumped 38 percent by December 31, 2021 when compared to December 2020.
In the first four months of the ongoing calendar year, auto financing has grown by only 3.8 percent.
“Current financing is increasing because of old bookings,” Samiullah Tariq, Head of Research at Pak Kuwait Investment Company said. “However, after changes in the State Bank regulations, increase in interest rates and increase in car prices, monthly payments have gone up significantly. Therefore, new car financing will reduce significantly.”
He added that the impact would be visible in some months.
Experts believe the loans would come down with record high interest rates at 13.75 percent. Adding to the auto consumer woes, SBP has put another restriction, the maximum tenure of auto finance facility has been reduced from five years to three years for vehicles above 1,000cc engine size and from seven years to five years for vehicles up to 1,000cc engine displacement.
It would also be applicable on financing for all locally assembled electric vehicles. However, this would not be the financing regime for Roshan Apni Car products.
SBP also mounted restrictions on auto financing last year in September to contain rising demand in an effort to curtail soaring current account deficit.
It has been putting restrictions on auto financing to curtail imports as Pakistan’s foreign exchange reserves continue to fall and currently stand at $10.1 billion - not enough to cover two months of import bills.
Pakistan’s auto sector raises eyebrows of regulators because it uses a high level of imported parts, whereas locally manufactured auto parts also have a high reliance on imported raw material.
Last year, the central bank increased the minimum down payment cap to 30 percent from 15 percent; reduced maximum auto loan repayment tenor from seven years to five years, slashed debt-burden ratio from 50 percent to 40 percent, and also limited maximum auto loan to Rs3 million.
These restrictions, however, did not apply on cars below 1000cc engine size.
According to industry officials, the number of cars purchased through auto financing are between 30 percent and 40 percent of total cars sold in the country and experts see increasing interest rates and restrictions to affect auto industry sales.