Car loans hit record high of Rs308bn in FY21

Published July 27, 2021
Buyers remained upbeat to cash in on the opportunity of low interest rate of 7pc which was 13.5pc in March 2020. — AFP/File
Buyers remained upbeat to cash in on the opportunity of low interest rate of 7pc which was 13.5pc in March 2020. — AFP/File

KARACHI: Low interest rates and buyers’ enthusiasm for locally-assembled cars have taken auto financing to a historic high of Rs308 billion as of June 2021, up by 3.6 per cent month on month and 46pc since June 2020, shows the data released by the State Bank of Pakistan on Monday. The total car financing saw a jump of Rs97bn compared to Rs211bn in June last year, according to the SBP figures .

Despite high prices of locally-assembled cars in the last one and a half years followed by late deliveries and high premiums, buyers remained upbeat to cash in on the opportunity of low interest rate of 7pc which was 13.5pc in March 2020.

“The share of auto financing in total car sales now stands between 40 and 45pc depending on car models as compared to 15-20pc some two years ago,” said Head of Research at Arif Habib Limited Tahir Abbas.

People have now got a wide choice of locally-assembled cars following soaring competition among new and old players and massive slowdown in arrival of imported used cars, he said.

“Cars demand will remain in the upward trajectory in the next six months following a cut in prices announced by the car assemblers after reduction in the federal excise duty (FED) by 2.5pc, additional customs duty to 2pc from 7pc and general sales tax to 12.5pc from 17pc on vehicles up to 1,000cc,” he predicted, adding that the SBP is likely to keep the interest rate unchanged at 7pc in the monetary policy to be announced on Tuesday.

Car sales by members of the Pakistan Automotive Manufacturers Association in FY21 have swelled by 56.7pc to 151,182 units from 96,455 units.

CEO of Indus Motor Company Limited Ali Asghar Jamali said auto financing is picking up due to very attractive interest rates. “I feel that the next six months will be very good in terms of car sales.”

About booking of cars under Roshan Apni Car for overseas Pakistanis who have opened Roshan Digital Account (RDA), he said “the response is reasonable”. The inflow of deposits under RDA had crossed $1.5bn which was $418mn in January 2021.

Head of Research at Pak Kuwait Investment Samiullah Tariq said a number of people who could not travel abroad due to Covid-19 restrictions preferred to purchase new locally-assembled vehicles for domestic travel as they were further fascinated by new models and low interest rates.

He said auto financing in total car sales has doubled to 40pc from 15-20pc two years ago.

Published in Dawn, July 27th, 2021

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