KARACHI: Bank financing for automobiles jumped 42 per cent year-on-year to Rs349 billion in November. However, month-on-month, it grew by a paltry 1pc, data released by State Bank of Pakistan (SBP) on Monday showed.

“This is the lowest monthly increase after July 2020 when it stood at Rs215bn,” said Arsalan Hanif of Arif Habib Securities attributing the slowdown to the amendments made by the SBP to prudential regulations regarding auto financing announced in the last week of September.

He said the auto market has started feeling the pinch of SBP’s prudential regulations aimed at compressing the demand for automobiles and reducing import bill to support the balance of payments. However, he said the real impact of the SBP decision would be more visible from January next year onwards as currently, deliveries of cars are being made which have been booked three to six months back.

He said the increase in interest rate to 9.75pc from 7pc in September had also made many buyers cautious.

Year-on-year it jumps 42pc to Rs349bn

As per data of the Pakistan Automotive Manufacturers Association (PAMA), car sales plunged to 15,351 units in November from 17,413 units in October and 18,971 units in September. However, overall car sales in 5MFY22 jumped to 90,303 units from 55,779 units in the same period last year.

Total sales of jeeps also fell to 1,016 units in November from 1,251 units in October while total pickup sales slightly came down to 2,347 units from 2,360 units in October.

Mr Arsalan said the SBP’s prudential regulation for consumer financing would not be applicable on locally manufactured cars below 1,000cc and locally manufactured electric vehicles because the government wanted to protect lower- to middle-income category purchases along with promoting the use of clean energy.

Some of the key SBP’s decisions were cut in maximum tenure of auto financing from seven years to five years, increase in down payment for auto financing to 30pc from 15pc and reduction in maximum tenure for a personal loan from five years to four years.

Maximum debt-burden ratio, allowed to a borrower had been decreased from 50pc to 40pc while the overall auto financing limits availed by one person from all banks/DFIs, in aggregate, would not exceed Rs3m, at any point in time.

An authorised dealer of locally assembled cars said he had talked to various banks where officials said that the processing of an application for auto financing has fallen by 40-50pc from October onwards, while showrooms are also facing the same situation where buyers arrive for booking of cars through bank auto financing.

The government is also planning to control rising import bill by increasing duties on luxury items including completely built-up (CBU) cars followed by higher federal excise duty on locally manufactured cars in the mini-budget.

Umair Naseer of Topline Securities said the increase in regulatory duty on CBUs would result in high car prices and may result in reduced demand for imported CBUs by new entrants.

Published in Dawn, December 21st, 2021