Bank lending to customers purchasing autos declined for the 14th consecutive month in August, as car demand slowed as interest rates rose.
Meanwhile, car loans fell 2.5 percent month on month to Rs. 278 billion in August, according to data issued by the State Bank of Pakistan (SBP) on Monday. These loans totaled Rs. 285 billion in the preceding month.
Car Financing Decline
Auto lending fell 21.1 percent year on year in August. Last month, consumers borrowed Rs. 353 billion from banks to purchase cars and other vehicles.
Auto loans reached a peak of Rs. 368 billion in June 2022. Due to growing borrowing prices worsened by the recent economic turbulence, these loans have declined by Rs. 90 billion since that time.
According to analysts, increasing interest rates and various SBP steps to decrease auto demand are prohibiting people from purchasing vehicles through bank financing.
Along with increasing lending rates, the rupee’s fall against the dollar increased car prices. Consumer purchasing power has suffered as a result of rising inflation.
Crisis on Auto Sector
Analysts believe that the car sector will stay somewhat in crisis through December, and that the sales picture may remain worrisome even into 2024 if there is no sign of a big decrease in interest rates, prices, or currency stability.
In its meeting on September 14, the SBP maintained the policy rate at 22 percent. Since September 2021, it has raised interest rates by a total of 15 percentage points to 22 percent.
Latest Data From PAMA
According to the latest data from the Pakistan Automotive Manufacturers Association, automotive sales in August climbed by 49 percent month on month to 7,579 units, but declined by 36 percent year on year. 11,789 units were sold in August 2022.
According to SBP data, bank loans to the private sector declined 1.1 percent in August to Rs. 7.96 trillion. In the same month last year, these loans totaled Rs. 8.05 trillion.
Consumer loans fell 5.4 percent to Rs. 846 billion in August, down from Rs. 893 billion the previous year.
Personal loans declined 1% year on year to Rs. 248 billion in consumer lending. However, construction loans increased 1.7 percent to Rs. 209 billion in August.
Consumer Finance Category Position
According to the SBP’s banking sector analysis, the consumer finance category, which accounts for 6.9 percent of banks’ domestic loan portfolio, recorded a net retirement of Rs. 47.4 billion in the first six months of 2023.
“Auto financing observed retirement of Rs. 44.9 billion, driven by high interest rates and the lag impact of macro prudential measures which were taken during CY21,” it said.
“Importantly, mortgage loans, constituting 25.2 percent of total consumer loans, also gradually lost momentum, as the concessional finance scheme for low-income groups that particularly augmented the growth of mortgage finance in recent quarters was suspended in June 2022,” it added.
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