Auto financing in Pakistan drops for 26th consecutive month

September 18, 2024 (MLN): Automobile financing in Pakistan has dropped for the 26th consecutive month to Rs227.3bn in August 2024, a fall of 0.3% MoM compared to Rs228bn last month, according to the latest data released by the central bank.

On a year-on-year basis, car financing decreased by 18.25%, as in the same period last year, the figure for financing was reported at Rs278.05bn.

Several factors has contributed to the slowdown in credit demand in Pakistan. Persistently elevated cost of borrowing and fiscal consolidation were instrumental in dampening credit demand in the past few years.

However, despite the monetary easing by the central bank since June, private-sector borrowing hasn't picked up.

Last week, SBP lowered its key policy rate by 200 basis points to 17.5%. The reduction was the third in a row, bringing the total decrease since June 2024 to 450bps.

Meanwhile, political and economic uncertainty weighed on fixed investment loans.

Apart from these factors, slight moderation in the cost of production, reduced working capital requirements of a number of industries, despite a relatively lower contraction in LSM output.

This is with the exception to gas prices, which were revised upward from November 2023 onwards

Going by the data provided by the State Bank of Pakistan (SBP), consumer financing for house building stood at Rs202.4bn by the end of August 2024, down by 3.39% YoY.

Month-wise, the financing for house building has decreased by 0.2% compared to Rs202.8bn incurred in the previous month.

Meanwhile, financing for personal use clocked in at Rs238.57bn, down by 3.89% YoY and 0.16% MoM.

Thereby, the overall credit disbursed to consumers registered a decline of 4.92% YoY to clock in at Rs803.94bn. Compared to the credit of Rs802bn in the previous month, consumer financing has recorded a 0.24% MoM rise.

The data released by the central bank further showed that outstanding credit to the private sector rose 3.55% YoY to Rs8.24tr in August 2024.

On a sequential basis, private sector loans reported a drop of 0.58% MoM compared to the credit of Rs8.29tr in July.

Under the credit to the private sector, the loans to the manufacturing sector clocked in at Rs4.63tr in the review period, up by 5.31% YoY while down 1.01% MoM.

The borrowing from the construction sector stood at Rs192.12bn in August, up by 0.44% YoY and 1.42% MoM.

Going forward, the data further shows that loans to the agriculture, forestry, and fishing sectors rose to Rs395.44bn in the month under review, up by 11.06% YoY, and on a sequential basis, the loans to the same sector recorded a fall of 0.07% MoM.

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