KARACHI: Despite rising interest rates and policy changes to curb the demand for automobiles, bank financing jumped year-on-year by Rs98 billion or 38 per cent to Rs354bn by Dec 31, 2021.

Arsalan Hanif of Arif Habib Ltd said auto financing had risen due to pent-up demand for vehicles, which is evident from the highest-ever monthly car sales in December 2021 along with significant orders in the pipeline that may keep car loaning numbers at the higher side for the next two months.

However, month-on-month it rose by just Rs5bn or 1.3pc, showed figures released by the State Bank of Pakistan (SBP).

Samiullah Tariq, head of Research Pak Kuwait Investment Company, said that prior to State Bank of Pakistan’s curbs on auto financing, the monthly jump in auto financing was in the range of Rs7-8bn which had now shrunk to Rs5bn.

Demand growth slowing down since November

The demand for bank auto financing had surged year-on-year by 42pc to Rs349bn in November 2021 but on month-on-month it posted just 1pc growth, depicting a downward trend in auto loans from November 2021.

He said the buying of automobiles through bank financing has been a popular trend among Pakistanis while in other countries home financing dominates over other financing options. SBP data showed that house loans had swelled by 67pc to Rs144bn as of December 2021 as compared to Rs86bn as of December 2020 but it cannot match with the pace of auto loans.

Research analyst Muqeet Naeem at Ismail Iqbal Securities said for discouraging auto loans the SBP had increased down payment from 15pc to 30pc followed by maximum limit of Rs3m and cut in maximum tenure of car financing to five years from seven years.

The government is mainly focusing on boosting the housing and construction sector as it cannot avoid it after giving incentives while the auto sector is now avoidable, he said.

Mr Samiullah said the auto loans may continue to witness a bit sluggish trend due to rising interest rates and the SBP’s decision to control auto demand. Besides, the central bank had also raised its policy rate by 275 basis points to 9.75pc from 7pc in September 2021, he added.

He said its impact had been witnessed in the last couple of months where auto loans just recorded only 1pc rise as compared to an average jump of 3pc during 2021.

Total car sales swelled by 71.2pc to 114,765 units in 1HFY22 from 67,026 units in 1HFY21, while December 2021 sales reached 24,462 units from 15,351 units in November 2021.

Published in Dawn, January 19th, 2022

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