Auto loans plunge 24.4pc y/y, marking 21 months of consecutive decline

KARACHI: The auto loans dropped by 24.4 percent year-on-year to Rs239 billion in March, marking the twenty-first month of consecutive decline as consumer financing tightens.

In March, there was a 1.4 percent decrease in auto loans compared to the previous month. The amount of car financing was Rs243 billion in the prior month. In June 2022, these borrowings reached a record high of Rs368 billion. Since then, these loans have decreased by Rs129 billion. The factors that reduced demand for these loans included expensive auto finance, increasing car prices, and rapidly rising inflation, all of which contributed to low consumer purchasing power.

The State Bank of Pakistan has kept its benchmark interest rate unchanged at a record 22 percent for July 2023. The central bank has hiked interest rates by a cumulative 15 percentage points since September 2021 amid skyrocketing inflation.

According to analysts, this downward trend will reverse as demand for auto loans may rise in response to potential interest rate cuts and an easing of inflationary pressures. The State Bank of Pakistan is likely to begin lowering its benchmark interest rate this quarter.

According to the latest data from the Pakistan Automotive Manufacturing Association, car sales in Pakistan in March came to 9,379 units, showing a 3 percent decrease compared with the previous month and a 1 percent decline compared with the same period last year.

The SBP's data showed that loans to the private sector totaled Rs8.406 trillion in March, up 0.7 percent from a year earlier but down 0.2 percent when compared with the previous month. These loans are 8.4 percent of the GDP, and 75 percent of total loans in March.

In March, consumer financing fell by 8.2 percent to Rs807 billion from Rs879 billion a year ago. Month-wise, the financing for house building decreased by 0.67 percent compared to Rs207.14 billion incurred in the previous month. The financing for personal use was Rs242.05 billion, down by 3.63 percent year-on-year and 0.03 percent month-on-month.

The central bank data showed that outstanding credit to the private sector rose 0.72 percent year-on-year to Rs8.41 trillion in March 2024. On a sequential basis, private sector loans reported a drop of 0.16 percent month-on-month compared to the credit of Rs8.42 trillion in February.

The loans to the manufacturing sector were Rs4.84 trillion in the review period, up by 2.26 percent year-on-year while down 0.39 percent month-on-month. The borrowing from the construction sector stood at Rs194.43 billion in March, down by 0.59 percent year-on-year and 2.09 percent month-on-month.

The loans to the agriculture, forestry, and fishing sectors rose to Rs392.15 billion in the month under review, up by 15.69 percent year-on-year. On a sequential basis, the loans to the same sector recorded a fall of 2 percent month-on-month.