The total amount of outstanding vehicle loans continued to decline for the 10th consecutive month, falling by 16% to Rs 308 billion in April 2023 from Rs 368 billion in June 2022.
According to data released by the State Bank of Pakistan (SBP), auto loans decreased by 2.83% month-on-month from Rs 317 billion in March. Given the rising SBP policy rate, which currently stands at 21% as opposed to just 7% in March 2020, auto leasing by private banks has been on the decline as well.
Since the central bank’s decision to restrict the import of completely knocked-down kits in July 2022, which caused frequent factory closures and enormous delays in deliveries of vehicles, the auto industry which has always remained dependent on imports has been under severe pressure.
Nevertheless, assemblers persisted in generating significant price shocks despite plant closures, blaming the rupee’s decline versus the US dollar. In addition, the SBP also implemented a number of restrictions, such as a Rs 3 million upper limit on auto loans, in an effort to reduce the sales of expensive cars and the length of time that they are repaid.
According to analysts, auto financing used to enjoy up to 60% share in the total vehicle sales which has now dwindled to just around 25%. Additionally, car leasing is declining as a result of rising monthly payments due to the persistent increase in interest rates.
A private bank employee, dealing in car leasing, said many new companies have suspended providing new vehicles to their high-salaried employees. He recalled:
“Our bank used to get financing of 350-400 vehicles a month for a few months as compared to 90-100 vehicles currently in which mostly are used locally made low engine power vehicles of less than 10 years old model.”
Sales of locally assembled automobiles dropped by 50% year over year to just 114,868 units in the first 10 months of FY23. At the same time, imports of fully and partially assembled kits by local players fell by 51% in 10-MFY23 to $682 million from $1.4 billion in the corresponding period of the previous year.
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