What we see these days is a continuing romance between banks and car companies. One fuels car sales while the other enables banks to earn significant interest income.

Car financing in particular and consumer loans in general saw signs of resurging after a gap of several years for the first time in 2013-14 on the back of economic growth.

In July-September this year, banks’ auto loans almost doubled to Rs11.1 billion from Rs5.7bn in July-September last year.

This is just a continuation of the huge 60 per cent rise recorded in auto loans last fiscal year ending June, according to the latest data of the State Bank of Pakistan (SBP). In 2016-17, banks’ auto financing totalled Rs70.5bn against that of Rs44bn in the preceding fiscal year.

According to the Pakistan Automotive Manufacturers Association, auto sales also recorded a matching growth of 60pc, as 44,372 vehicles were sold during July-September 2017 against 27,630 in the same period of 2016.

Senior bankers say an increase in auto loans (and also in overall consumer finance) in the first quarter of the fiscal year is always good as during this period net credit to private sector businesses remains negative due to usual heavy credit retirement.

‘The acceleration in car loans is demand-driven and bulk of the demand is coming from people employing vehicles in Uber and Careem e-hailing services,’ says the head of consumer banking

During the first quarter of this year, “it’s the volume of incremental auto loans (Rs11.1bn) that is noteworthy”, says the head of a local bank.

Between July and September this year, net stock of loans to private sector businesses saw a decline of Rs2bn, latest SBP stats show.

“The acceleration in car loans is demand-driven and bulk of the demand is coming from people employing vehicles in Uber and Careem e-hailing services,” says the head of consumer banking at a local bank.

Increasing car deliveries to people associated with Uber and Careem are helping the creation of full-time jobs for some and part-time opportunities for others. That is good for the economy.

What is bad, though, is that in their quest for meeting a demand rush, car assemblers are delaying deliveries.

Or this is what bankers tell their customers after sanctioning auto loans at lightning speed and then failing in ensuring vehicle delivery from designated dealers for weeks, and in some cases for months. Failure in timely delivery, regardless of who is responsible, reflects poorly on the auto industry’s reputation.

As auto financing fever runs high, banks, in competitive frenzy, are over-committing to car loan seekers. After approving auto loans, many bank branches debit down-payments from customers’ accounts and also make these accounts operational, thus requiring borrowers to start paying loan instalments. But they leave the customers at the mercy of car dealers instead of ensuring car deliveries within the promised timeline.

It is learnt this forms the core of complaints regarding auto loans that the office of Banking Ombudsman frequently get.

Top bankers say the recently issued guidelines of the State Bank of Pakistan on rights and responsibilities of banks and their customers should help address growing complaints, not only regarding car financing but in all other areas of customers’ relation with banks. Last week, after issuing these guidelines, SBP asked banks to make them available to their customers at all branches.

Bankers are happy that ongoing rise in car loans in particular and consumer loans in general are helpful in reaching out to new customers, a strategically positive move for them. They also take pride in the fact that a boom in car financing and modest growth in overall consumer finance is also contributing to the creation of jobs and promoting economic activity.

In addition to auto loans, mortgage loans and loans for consumer durables, credit cards and personal loans are key constituents of consumer finance.

In July-September this year, home construction lending tripled to Rs6.3bn, from just Rs2bn in the same period of last year, latest SBP data shows. This is no mean feat. Since construction generates activities in a large number of allied industries, the cumulative impact of such a high growth in housing finance bodes well for the economy.

However, many realtors and bankers believe that this surge in housing finance is more in response to a big demand of housing schemes launched by a few real estate tycoons.

Data on the number of borrowers and other details will be released later, but due to a ban on the construction of new highrises in Karachi, builders are sceptical about the sustainability of this growth rate.

Bankers, particularly those associated with Islamic banks or Islamic banking branches of conventional banks, say that in the first quarter of this fiscal year and the last fiscal year, they saw strong demand for housing finance from individual borrowers as well. They also point out that in housing finance (as part of consumer finance) lending for revamping, renovation or reconstruction of housing units is also included.

The SBP issues such lending details with a time lag. “So we’ll have to wait for a little to see where the demand for housing finance remained concentrated (in July-September 2017),” said a senior executive of an Islamic bank known for offering housing loans.

Published in Dawn, The Business and Finance Weekly, October 23rd, 2017