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KARACHI: After two months of improvement, auto financing dipped to Rs234.6bn in November from Rs236bn in October, according to the State Bank of Pakistan (SBP) data released on Tuesday.
Auto financing increased for the second consecutive month by 3.7pc month-on-month to Rs236bn in October compared to Rs227.541bn in September and Rs227.296bn in August due to promotional offers by banks and assemblers followed by lower financing costs as a result of falling interest rates.
The industry was upbeat about the revival of auto financing in September after 27 months. In June 2022, it was at its peak of Rs368bn.
The State Bank reduced its policy rate on June 10 to 20pc from 22pc, followed by a further reduction to 19.5pc on July 29, 17.5pc on Sept 12, 15pc on Nov 4 and 13pc on Dec 16, reflecting a cumulative 900bps decline in six months.
Drop to Rs234.6bn in November from Rs236bn in October
Commenting on the decline in auto financing, Topline Securities Chief Executive Mohammed Sohail said car sales and financing will likely pick up from January as buyers wait to get delivery for the new year model.
With low interest rates, car financing is likely to improve. The State Bank’s Rs3 million limit on auto loans is affecting the true potential of car loans, “ he added.
High interest rates coupled with a loan cap, reduction in payment tenure to five years for cars up to 1,000cc and three years for below 1,000cc and increasing the downpayment requirement to 30pc had restricted auto sales.
Insight Securities’ report said that with improving external accounts and a reasonable level of foreign exchange reserves, the State Bank now has the opportunity to ease the conditions that previously suppressed the demand for auto loans.
Quoting media reports, the brokerage said the SBP may increase the auto financing limit to Rs6m. If implemented, this policy change can act as a catalyst for sales growth.
Overall car, SUV, vans and pickup sales swelled 51pc during the July-November period to 50,856 units over the same period last year.
Published in Dawn, December 25th, 2024
