SBP tightens consumer lending rules to limit auto loans

KARACHI: The State Bank of Pakistan (SBP) on Thursday tightened rules on consumer lending to trim rapid loan growth mainly in auto sector.

"The SBP has revised prudential regulations (PRS) for consumer financing and this targeted step will help to moderate demand growth in the economy, leading to slower import growth and thus supporting the balance-of-payments," the bank said in a statement.

Pakistan’s current account deficit jumped 81 percent month-on-month in August as a strong demand spurred imports, outpacing a recovery in exports.

The current account deficit surged to $1.476 billion in August from $814 million in the previous month. It had posted a surplus of $255 million in August 2020.

This yawning was mainly due to higher trade deficit as imports continued to rise amid robust economic activity.

The SBP said the changes in the prudential regulations effectively prohibit financing for imported vehicles, and tighten regulatory requirements for financing of domestically manufactured/assembled vehicles of more than 1,000 cc engine capacity and other consumer finance facilities like personal loans and credit cards.

Under the new regulations, the maximum tenure of auto finance has been reduced from seven years to five years.

Similarly maximum tenure of personal loan has been reduced from five years to four years.

Maximum debt-burden ratio, allowed to a borrower, has been decreased from 50 percent to 40 percent.

Overall auto financing limits availed by one person from all banks/DFIs, in aggregate, will not exceed Rs3,000,000, at any point in time; and minimum down payment for auto financing has been increased from 15 percent to 30 percent.

"With the objective to protect lower to middle income category purchases, these new regulations are not applicable to locally manufactured or assembled vehicles of up to 1,000 cc engine capacity," SBP said.

They are also not applicable to locally manufactured electric vehicles to promote use of clean energy.

The financing of these two categories of vehicles will continue to be governed by previous set of regulations.

Sales of passenger cars jumped 81 percent in August, recovering from the collapse seen a year ago when coronavirus lockdowns and economic slowdown took a toll on sales.

The central bank said Roshan Digital Accounts and facilitate overseas Pakistanis who have opened these accounts, regulatory instructions for Roshan Apni Car product of the banks or DFIs have also not been changed.