Auto loans fall 24 percent y/y in April as higher borrowing costs bite

KARACHI: Auto loans dropped 24 percent year-on-year to Rs236 billion in April, central bank data showed on Monday, as higher borrowing costs and economic constraints curbed consumer demand.

Analyst attributed the decline to higher borrowing costs and general economic activity constraints that reduced consumer demand for these loans.In April, there was a 2 percent month-on-month decrease in auto loans. The amount of car financing was Rs239 billion in the prior month.

Auto financing has been negatively impacted by stabilisation measures that have been in place for the past two years, such as high interest rates and stricter prudential rules.The Pakistan Automotive Manufacturing Association reported that sales of passenger cars increased by 16 percent in April compared with the previous month, when 7,672 units were sold. However, the same is up 212 percent year-on-year. But in 10 months (July-April) of the current fiscal year, total passenger car sales fell by 29 percent to a total of 63,000 units as a result of rising costs, high loan rates, increased tariffs and taxes, and a slowing economy that decreased demand.

The SBP’s data showed that consumer financing decreased to Rs803 billion in April, down 7.5 percent from a year earlier and 0.6 percent from the previous month. The credit cards maintained the rising trend witnessed for the past couple of years, whereas house building edged down after showing a rising trend since FY21. Credit card loans rose by 31 percent year-on-year to Rs116 billion in April.

The rise in credit against credit cards can be largely attributed to customers' growing usage of digital technologies because they make payments easier and more convenient. Furthermore, the rising cost of living combined with financial hardships may have forced people to use credit cards for purchases.Housing loans declined by 3 percent to Rs206 billion. In April, loans to the private sector reached Rs8.31 trillion, up 1.5 percent year-on-year.