Auto financing falls for eighth straight month in February

KARACHI: Bank lending to consumers buying cars fell for the eighth consecutive month in February, indicating a slowdown in overall demand, higher interest rates, rising vehicle costs, and plants’ shutdown.

Auto loans dropped 1.8 percent month-on-month to Rs326 billion in February, according to figures from the State Bank of Pakistan (SBP) on Tuesday.

These loans stood at Rs332 billion in the previous month. Auto financing fell 8.6 percent year-on-year in February. Consumers borrowed Rs357 billion from banks for the purchase of cars and other vehicles in the same month last year.

Analysts said the decline in auto loans is driven by escalating car prices, expensive financing, and low purchasing power of consumers. This also reflects a slowdown in the economy.

Car prices have increased sharply as a result of the depreciation of the rupee against the dollar, which has also reduced the demand.

According to data released by Pakistan Automotive Manufacturers Association (PAMA), passenger car sales plunged by 80 percent in February 2023 to 3,642 units only, against 18,054 units in February 2022.

In the first eight months of FY2023, a total of 78,575 units were sold, down 48 percent against 149,813 units sold during the same period in FY2022. February 2023 sales decreased by 40 percent, compared with 6,021 units sold in January 2023.

This month, the State Bank of Pakistan raised its key policy rate by 300 basis points to 20 percent in an effort to combat soaring inflation.

The SBP’s data showed that consumer loans increased 7.2 percent to Rs889 billion in February from Rs829 billion a year ago. Amongst consumer lending, personal loans rose 5.9 percent year-on-year to Rs254 billion. House building loans rose 35 percent to Rs215 billion in February.

Loans to private sector businesses rose 11.8 percent to Rs8.419 trillion in February from Rs7.534 trillion a year ago. An increase in bank lending to private businesses is attributed to strong demand for working capital loans from the manufacturing sector.

Loans to the manufacturing sector rose to Rs4.80 trillion in February from Rs4.23 trillion in the same month a year earlier. Textile firms obtained Rs1.632 trillion in loans from banks, compared with Rs1.429 trillion in the corresponding month last year.

Bank lending to food manufacturers rose to Rs1.144 trillion in February from Rs999 billion a year ago.