Higher interest rates slow downauto financing for 10th straight month

KARACHI: Banks credit to individuals purchasing automobiles fell for the 10th consecutive month in April due to increased interest rates, demand contraction measures, higher car prices, and plant closures.

According to the latest data from the State Bank of Pakistan (SBP), auto loans decreased by 2.5 percent month-on-month to Rs309 billion in April. In the previous month, these loans totalled Rs317 billion. April saw a 15.7 percent yearly decline in auto financing. In the same month last year, consumers borrowed Rs367 billion from banks to buy cars and other vehicles.

Rising auto prices, high financing costs, and customers with limited purchasing power are to blame for the fall in auto loans. In an effort to combat record-high inflation, the State Bank of Pakistan increased its benchmark policy rate by 100 basis points to 21 percent in April.

In addition to higher interest rates, analysts said the decline is a result of the macro prudential measures taken by the SBP to support the country’s balance of payments position by slowing overall import growth and automobile imports in particular. These measures aim to moderate domestic demand in the economy.

The government raised duties on locally manufactured and assembled cars. Therefore, the lag impact of regulatory measures was visible in the overall slowdown in consumer financing.

Additionally, since last year, automakers have raised car prices many times as a result of the rising cost of production, further depressing demand for vehicles. On the other hand, problems with raw material availability due to import curbs caused a decrease in the manufacturing of automobiles. The sum of these elements reduced the availability of auto loans overall.

According to data from the Pakistan Automotive Manufacturers Association, the escalating economic and political unrest had a negative impact on vehicle demand, as sales of automobiles, light commercial vehicles, jeeps, and vans fell by more than 80 percent year-on-year to 4,463 units in April.

In the first ten months (July through April) of the current fiscal year, sales decreased by 50 percent to 114, 868 units from 227,995 units in the same period last year.

The main causes of the ongoing decline in auto sales were delays in delivering automobiles to consumers and plant closures brought on by parts shortages as a result of import restrictions.

The SBP’s data showed that consumer loans remained flat at Rs868 billion in April from Rs867 a year earlier. Under the consumer lending category, personal loans rose 2.2 percent year-on-year to Rs250 billion. House building loans rose 19.2 percent to Rs213 billion in April.