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Consumer loans jump 32.6pc to Rs708bln in June

By Our Correspondent
July 27, 2021

KARACHI: Lending to consumers by banks surged 32.6 percent year-on-year in June, latest data showed, largely because of low interest rates and signs of economic recovery.

State Bank of Pakistan’s (SBP) number presented that consumer loans such as home, car and personal loans, and credit cards rose to Rs708 billion in June from Rs534 billion a year ago. The consumer financing saw a 3.5 percent month-on-month increase in May where it stood at Rs684 billion.

Consumers are feeling the benefits of the low cost of borrowing, while inflationary pressures and the outbreak of the coronavirus pandemic also forced them to take out loans to fulfill their needs. The overall consumer loans were on a rise in June but it was a large increase in auto finance that dominated banks’ consumer portfolio.

Auto financing increased to Rs308 billion in June, up 3.6 percent month-on-month and 45.9 percent since June 2020. The upward trend is mainly attributed to loose monetary policy and rising prices of passenger cars, which affected the consumers’ capacity to buy on cash and new entrants in the market, providing wider options to the consumers, said the SBP’s third quarterly report on Pakistan’s economy for FY2021.

This is consistent with an across-the-board increase in the sales of auto assemblers during the period under review. In particular, cars in the category below 1000cc and jeeps were in higher demand, it added.

Personal loans also picked up the pace. The increase in these loans may be seen as the impact of Covid and the overall inflationary pressures in the economy which might have affected the real income of consumers, especially the low income group. Personal loans stood at Rs235 billion in June, compared with Rs192 billion in the same month of the previous fiscal year.

Apart from auto and personal loans, borrowing under housing finance also went up. The increase is mainly driven by SBP’s measures to promote housing and construction of buildings in the country.

Housing finance 29.9 percent to Rs104 billion in June. The government has taken steps to accelerate activity in the housing and construction finance and encouraged banks to continue to support this area of economic activity and especially to facilitate customers interested in availing the government’s markup subsidy scheme for housing.

In July, 2020, the State Bank, in line with the government's vision to promote the housing and construction sector activities and improve home ownership in the country, mandated banks to increase their housing and construction finance portfolio to at least 5 percent of their private sector advances by December 2021. The loans by banks through credit cards rose 27.9 percent year-on-year to Rs5 billion by the end of June, 2021.