Auto financing dips 2.2pc in August
KARACHI: Due to rising vehicle prices and high interest rates, auto financing shrank by 2.2 per cent in August compared to July, reaching the lowest level since January.
According to data released by the State Bank of Pakistan (SBP), auto loans increased by 8.2pc in August to Rs353 billion, up from Rs326 billion in the same month in 2021. Auto loans in July this year were Rs361bn.
According to Arif Habib Limited (AHL), the cumulative decline in auto financing from June to August has been around Rs15bn.
Samiullah Tariq, the head of research at Pak Kuwait Investment Company Ltd, said that auto financing may remain in a negative tone in coming months as long as interest rates remain high, followed by SBP’s restriction on auto financing for amounts greater than Rs3m, increase in debt burden ratio, soaring automobile prices, non-improvement in macroeconomic indicators, non-production days by the assemblers, uncertain booking schedule and delivery of vehicles, etc.
Meanwhile, Fahad Rauf, the head of research at Ismail Iqbal Securities, anticipates a tough time for the entire auto sector in view of costly auto financing as high interest rates of 15pc are unlikely to come down in the next six months.
He said people have become reluctant about auto loan borrowing due to high prices, which had slowed down the demand for vehicles, while SBP’s capping on financing up to Rs3m and cut in auto loan tenure from seven to three years is not attracting many buyers. “After adding insurance and other charges, people cannot afford to take an auto loan at 20pc interest rate. People are finding it difficult to pay costly monthly installments,” he added.
Mr Rauf said the auto sector would feel the pinch of the economic slowdown followed by the devastation of crops by the floods in rural areas, which would discourage growers from buying vehicles in coming months.
A banker dealing in auto financing told Dawn, “The situation is bad and there is no chance for any improvement under current SBP restrictions.”
He said the reduction in the tenure of financing had also taken away the buyers from the markets. There is a need to increase the amount of financing to Rs8m from Rs3m to lure buyers.
Auto assemblers heavily rely on banks’ car financing as its share hovers between 26pc and 40pc of three major Japanese car assemblers in total car sales.
Total car sales in July-August plunged by 50pc year on year to clock in at 19,358 units, down from 38,568 units a year ago due to non-production days led by a shortage of parts followed by an economic slowdown.
Published in Dawn, September 21st, 2022