KARACHI: The amount of outstanding auto loans decreased for the fourth consecutive month at the end of October, data released by the State Bank of Pakistan (SBP) showed on Monday.

The outstanding auto financing stood at Rs345 billion at the end of last month, which is 0.1 per cent lower than the October 2021 figure of Rs346bn. The latest outstanding auto financing figure is 1.4pc lower than its September 2022 level.

A massive increase in car prices, soaring interest rates, various measures by the SBP to slow down auto financing, plant shutdowns of various assemblers in the last few months owing to import curbs and delays in the delivery of vehicles have forced buyers to postpone their purchase decisions.

However, some assemblers, especially Chinese and Koreans, have recently started offering ready delivery of vehicles on full payment after the clearance of their imported auto kits from the port. But high prices and a steep increase in the key interest rate last month may still hinder their sales.

“The government does not want to keep auto demand brisk. So it’s attempting to curtail the imports of parts and accessories to help the fragile balance-of-payment situation,” said Pak Kuwait Investment Company Ltd Head of Research Samiullah Tariq while speaking to Dawn.

With a further hike of 100 basis points in the key interest rate to 16pc by the SBP, auto demand will remain low for the next year at least, he said. It may revive in case the key interest rate comes down by three to four percentage points in the coming months, he added.

Mr Tariq said the benchmark interest rate has more than doubled to 16pc from 7.25pc in September 2021, which is forcing consumers to pay higher monthly auto loan instalments.

He said buyers have also restricted their purchases of new cars — a fact that’s evident by a huge fall in auto sales that dropped to 39,700 units in July-October from 74,952 units a year ago. The sales of pickups and jeeps dropped to 8,234 units in the same four months from 14,969 units a year ago.

One of the main reasons for anxiety among buyers is an average increase of 40pc in car prices since September 2021.

For example, the Honda City manual is now priced at Rs3.77 million versus Rs2.59m in September 2021, he added.

Auto financing also faced other challenges like the upper limit of Rs3m on auto loans to curb the sale of costly vehicles as well as the reduction in the auto loan repayment tenor.

The SBP also cut the debt-burden ratio (DBR) last year to 40pc from 50pc. As a result, the monthly auto loan payment must now account for 40pc or less of one’s income versus the earlier threshold of 50pc.

Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) Chairman Munir Bana said heavy floods, hyperinflation, rising dollar rate, import restrictions and political uncertainty have affected the local tractor parts industry, which is facing a production drop owing to a drastic fall in tractor sales.

Published in Dawn, December 6th, 2022