Auto Financing Falls for 8th Consecutive Month

Auto financing in Pakistan continued to decline for the 8th consecutive month in February 2023 dipping nearly 9% to Rs 326 billion from Rs 357bn in the same month of the previous year, according to the data released by the State Bank of Pakistan (SBP).

Analysts believe car financing will continue to be sluggish in the upcoming months as a result of a sharp increase in monthly payments brought on by skyrocketing interest rates, rising vehicle prices, and delays in vehicle delivery due to plant closures.

Local assemblers have continued to cease production due to parts & component shortages following the central bank’s decision to impose tariffs on imported parts and kits in an effort to dampen vehicle demand. Furthermore, the interest rate now stands at a staggering 20%, which used to be just 7% in March 2020.

Plus the current strict auto financing conditions which were implemented by SBP in September 2021 also sway plenty of buyers away. The tightened conditions render as:

  • The minimum required down payment was increased from 15% to 30%.
  • The maximum tenure of auto financing was reduced from 7 years to 5 years.
  • The maxi­mum debt-burden ratio, allowed to a borrower, was decreased from 50 to 40%.
  • Auto financing limits availed by one person from all banks in the aggregate, not to exceed Rs 30 lac at any point in time.
  • Financing for imported vehicles is completely prohibited regardless of engine capacity.

According to Samiullah Tariq, head of Research Pak Kuwait Investment Company, in the midst of record inflation, banks are issuing loans at rates that are up to 5% higher than the Karachi Interbank Offered Rate (Kibor), making it extremely difficult for the buyers to afford higher monthly installments.

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