Auto financing shrinks on dismal demand in Pakistan

KARACHI: The amount of outstanding auto loans declined for the 17th consecutive month to Rs257 billion at the end of November from Rs264bn in October, depicting a fall of 2.6 per cent on a month-on-month basis and 24.4pc on a year-on-year basis.

Data released by the State Bank of Pakistan (SBP) revealed that the total drop in the last 17 months was Rs111bn. At the end of June 2022, the auto financing stood at Rs368bn.

Falling bank auto financing reflected a lack of buyers’ interest due to a steep rise in car prices as a result of the rupee devaluation against the dollar. 

The rest of the damage was done by high interest rates followed by curbs on auto financing by the SBP to taper demand for vehicles aimed at controlling the current account deficit through dwindling imports of parts and accessories. The interest rate is currently at 22pc as compared to 7pc in March 2020.

Some assemblers, besides lowering prices, also offered incentives like discounts, instalment payments and after-sales service packages, but it failed to revive demand. Some Korean and Japanese assemblers had slashed prices due to rupee appreciation while Pak Suzuki kept the rates unchanged.

The country’s auto sector has been facing temporary plant shutdowns for the last year due to SBP curbs on opening letters of credit. Auto vendor industries had also offloaded sizable numbers of daily wage workers and contractual workers to offset the operating cost and overhead expenses.