Car loans hit record high of Rs326bln in August

KARACHI: Auto financing reached an all-time high of Rs326 billion in August 2021, depicting a 46.8 percent year-on-year jump, mostly owing to low interest rates, a brokerage said quoting central bank data on Tuesday.

Car loans increased 3.8 percent month-on-month in August, while they stood at Rs314 billion in July, said Arif Hbib Limited in a report. “The growth in auto financing during Q3FY21 is mainly attributed to low interest rate environment, increasing prices of passenger cars, which affected the consumers’ capacity to buy on cash, and new entrants in the automobile market that provided wider options to the consumers,” said the State Bank of Pakistan’s (SBP) third quarterly report on Pakistan’s economy for FY2021.

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

Analysts expect the auto financing to face some slowdown in the wake of the high cost of borrowing. The SBP hiked interest rates by 25 basis points to 7.25 percent on Monday to moderate demand growth.

The Monetary Policy Committee (MPC) noted that accommodative financial conditions had provided significant support to the growth recovery since the start of FY2021. Following historic cuts in the policy rate and the introduction of SBP Covid-related support packages, private sector credit grew by more than 11 percent during FY2021, on the back of consumer loans (mainly auto finance and personal loans) followed by a broad-based expansion in credit for fixed investment and finally working capital loans.

“The MPC felt that some macro prudential tightening of consumer finance may also be appropriate to moderate demand growth as part of the move toward gradually normalizing monetary conditions,” it said.

Bank lending to consumers surged near 34 percent year-on-year in August. Consumer loans such as home, car and personal, and credit cards rose to Rs742 billion in August from Rs550 billion a year ago.

Personal loans stood at Rs239 billion in August, compared with Rs197 billion in the same month of the previous fiscal year. Housing finance also jumped 39.8 percent to Rs112 billion in August.