KARACHI: The massive cut in interest rate by the State Bank of Pakistan (SBP) since August 2011 has done little to boost the share of car sales through bank financing and leasing.

The SBP had reduced the interest rate to 9pc in June 2013 from 13.5pc prevailing on August 2011 but car sales share through leasing and bank financing remained static between 20-25 per cent of the overall car sales.

Auto industry saw the boom period of sales in 2004-05 to 2006-07 when the share of leasing and bank financing of vehicles was hovering 70-75pc out of total car sales owing to liberal policy adopted by banks besides number of incentives and packages.

Assemblers said that in case the share in total car sales has risen by 2 to 3pc in the last two years there is no need to mention it as it cannot be termed satisfactory.

They said that the situation is now altogether very different as the market lacked demand which was evident from overall car sale figures.

Car sales dropped to 118,830 units in 2012-13 as compared to 157,325 units in 2011-12.

Since there are only one or two leasing companies, 80pc of car financing is being offered by the banks.

Car financing was openly available with almost all banks in previous years. However, now financing is offered with a lot of checks, limitation, paper work and restrictions to avoid default.

Sources said that banks had recently entered into financing of used cars to lure customers.

A car assembler said that car sales had slightly improved in July 2013 to 9,288 units as compared to 8,996 units in July 2012 but the month to month sales had been falling.

Various banks are sanctioning auto loan with 14-18pc Kibor plus interest rate depending on loan maturity. However, banks have adopted stringent policies to avoid defaults.

Nauman Khan, head of research at Shajar Capital said car financing by banks did not pick up as banks as slow economic activity has not prompted the consumers for financing while banks had also opted for conservative approach in car financing. He was of the view that the share of car sales through banks financing has not exceeded 20pc in the last two years.

Going forward, he said in case the reduced interest rate environment continues coupled with economic revival in coming months then the car financing by the banks may improve.

Car sales also depend on rural and urban buying by the customers. An assembler said in case big growers and farmers get good agriculture income they increase car buying but any natural disaster like floods hamper their buying. He said that recent floods may hit car sales by the growers.

Similarly, corporate sector also buys cars every year but this is dependent on revenues. “If the companies earn higher revenues they make purchases but become hesitant in case the companies suffer huge losses,” the assembler said.

He said 70-80pc cars were registered in Karachi, Lahore, Islamabad and Rawalpindi.