CONSUMER financing has seen a surge in the last two fiscal years primarily due to a big jump in auto loans and to some extent in mortgage finance.

Banks had made net consumer financing of Rs31.2bn in FY14 and Rs31.3bn in FY15. This was equal to 10.5pc and 17.3pc of their net lending of Rs298bn and Rs180bn to private sector businesses (PSBs) in the last two fiscal years respectively, SBP data show.

In the first seven months of this fiscal year, banks made Rs4bn worth of net housing loans against Rs14bn auto loans. The reason for this is many announcement of mega housing projects. “And, we see even greater demand for mortgage finance in near future as part of money circulating outside the banking system is being pumped into real estate development,” says an executive of National Bank of Pakistan.

“Besides, restoration of peace and order in Karachi is encouraging real estate developers to offer new housing schemes for different categories of middle income groups.”

Till the end of the last fiscal year in June 2015, net new housing loans totalled about Rs1bn. Against this, net auto loaning, which makes up the bulk of consumer finance, stood close to Rs10bn.

A surge in housing loans seen during this fiscal year is strong enough to keep up growth trend in overall consumer financing even if auto loans face a weaker demand in near future

Senior bankers argue that banks have little excuse now to let consumer finance slip or grow timidly because economic growth is expected to pick up pace, mega housing projects are coming up and urbanisation and public craze for better lifestyle is creating demand for consumer finance.

They say that a surge in housing loans seen during this fiscal year is strong enough to keep up growth trend in overall consumer financing even if auto loans face a weaker demand in near future.

Senior bankers say that the recently announced auto policy can weigh on their business in two ways. “In the short run, we may see a fall in consumer financing because only a friction of people using imported cars seek auto loans,” says a senior official of Bank Al-Habib. “But in the long run, when there is a gradual rise in imports of expensive cars and when our local auto industry absorbs the policy shock or new auto units come up, we hope to see a surge in consumer financing.”

Auto loans make a large part of consumer financing and since the new policy is aimed at balancing the protection level enjoyed by local assemblers and encouraging cheaper imports and entry of new car makers, it is but natural for banks to examine this policy from their business point of view.

But bankers point out that in spite of a decent growth in housing and auto loans, overall consumer financing in FY15 remained weaker than in FY14 due to decline in loans for purchase of consumer durables and personal loans made to individuals.

“We have to distribute either housing loans more aggressively or continue to keep the current balance between auto and housing finance because demand for financing purchase of consumer durables and personal loans still remain weak,” sums up a senior executive of Habib Bank Ltd. “Credit card business is gathering pace and there, too, banks can exploit more of the potential by being more user-friendly and by further rationalising interest rates.”

Consumer financing via credit cards is also gathering momentum with net financing volumes having risen by Rs1bn each in FY14 and FY15 and by Rs1.1bn in the first seven months of FY16.

In recent years, the Federal Investigation Agency has detected and closed down some outlets of parallel banking in Karachi and in Punjab. “But all informal financing cannot be eliminated as long as our economy remains least documented and our banks fail to realise that they need to simplify loaning procedures to attract seekers of personal loans,” says a former executive director of the State Bank of Pakistan.

Published in Dawn, Business & Finance weekly, March 28th, 2016