KARACHI, Jan 28: From now on, banks and development finance institutions or DFIs will give auto loans only up to the extent of the ex-factory tax-paid prices of cars as the central bank has stopped them from financing premiums or on-money on purchase of cars.

A circular issued by the SBP on Friday said the decision would discourage speculative activities in car purchases. Following is the text of the circular issued by Banking Policy Department of the State Bank:

"It has been reported to the State Bank of Pakistan that the premium, also called on-money, on purchase of cars is being financed by some banks/DFIs, under their respective car finance schemes.

In order to discourage speculative activities in car purchases, which may be facilitated by the bank financing premium, it has been decided with immediate effect that the banks/DFIs shall extend loans only for the ex-factory tax paid price fixed by the car manufacturers.

In other words, bank/DFI's loans cannot finance the premium charged by the dealers and/or investors over and above the ex-factory tax paid price of cars fixed by the manufacturers." An accompanying press release issued by the SBP said besides curbing speculative activities, the above decision would also facilitate genuine buyers of cars.

In order to discourage speculation in the real estate, the SBP had earlier restricted banks/DFIs from extending financing solely for the purchase of land. "Similarly, with a view to curbing speculative activities in shares, the State Bank had earlier also prescribed limits on bank/DFI's investments in shares listed on the stock exchanges."