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Consumer financing fails to pick up

October 15, 2012

KARACHI, Oct 15: Despite 4 per cent cut in the policy interest rate since June 2011, consumer financing did not see any improvement, and instead it fell during the last 15 months.

State Bank’s recent report suggested that consumer financing was still in a bad shape while total financing fell from Rs217billion to Rs205 billion in the previous 15 months.

Bankers said that there were still doubts, and the interest rate might bounce back in case of agreement with donor agencies.

However, some analysts hope that consumer financing, particularly car financing, could take a positive change by next year.

Car financing fell to Rs44 billion in August 2012 to Rs51 billion in June 2011. House financing fell to Rs40 billion from Rs47 billion during the same time.

Banks have doubts over sustainability of the latest fall in the policy interest rate. There is fear among bankers that in case of any agreement for loans, IMF may influence the interest rate, forcing the government to tighten the policy as it did in the past, said Sayem Ali of the Standard Charted Bank. Sayem is the country economist for Pakistan.

Actually banks have drastically cut consumer financing and relieved staff attached with this sector as banks booked biggest loss from the sector, he said.

He was of the view that banks may gear up consumer financing if falling trend in the interest rate continues.

R M Aalam, another senior banker, said that consumer banking cannot improve unless people under severe impact of high inflation of last four years come out of this situation.

He said that the inflationary impact did not allow common consumers to approach banks for borrowing and it may not allow them in future also as situation has not yet improved enough for them.

“Neither consumer banking, nor the entire private sector is getting benefits from the 4 per cent cut in the policy interest rate. The government is the sole beneficiary of this low rate money which it has been borrowing on large scale from banks,” said Aalam.

Topline Research in its latest report expressed understanding that the leasing which is currently contributing around 10-15 per cent in car sales will gradually improve to the levels witnessed 5 years back, given low interest rate scenario.

“Though we believe car sales will remain suppress in FY13, car financing would propel sales in FY14 and beyond,” said the report.

The report expects the FY13 sales to drop by 16 per cent but show an improvement of 18-20 per cent in FY14 and FY15 to 180,000 and 210,000 units respectively.