SBP reduces auto financing period

May 24, 2022(MLN): The State Bank of Pakistan (SBP) on Tuesday revised prudential regulations for consumer financing, reducing the financing period for auto financing to trim rapid loan growth in the auto sector.

Under the new regulations, the maximum tenure of auto finance has been reduced from five years to three years. This will be applicable for cars above 1000cc.

For vehicles up to 1000cc, the tenure of auto loan has been reduced to five years from seven years.

This step will help to moderate demand growth in the economy, leading to slower import growth which will support the balance of payments.

As per the latest SBP data, automobile financing in Pakistan witnessed a marginal increase of 0.9% MoM to Rs367 billion in April 2022.

On year-on-year, the auto financing surged by 25% when compared to Rs293bn in April 2021, mainly on the back of increased consumers’ appetite led by the introduction of new models and brands by new entrants, especially in the category of cars above 1,000cc engines.

The sale of passenger cars also witnessed a rise of 29% YoY during April 2022, clocking in at 18,625 units as opposed to 14,435 units in April 2021. While, car sales observed a decline of 18% MoM due to price hikes led by PKR depreciation, higher interest rates, higher taxes coupled with reduced working hours during Ramadan.

As per the PBS data, the import bill of the transport sector posted a growth of 60% YoY to $3.73bn during 10MFY22 against $2.33bn over last year, mainly led by massive imports of road motor vehicles (build unit, CKD/SKD) worth $3.1bn. In the same period last year, the country imported $1.94bn worth of road motor vehicles.

In the month of April alone, the sector imported worth $366.5mn vehicles, observing an increase of 13.62% YoY whereas, on monthly basis, it showed a drop of 13.33% MoM in the import bill.

According to the note by Foundation Securities, PSMC would be most affected by these new prudential regulations given majority share in 1000cc vehicles.
Whereas, HCAR and INDU would be slightly affected by the 2 year reduction in maximum tenor of vehicles above 1000cc. Moreover, INDU has lowest sales reliance on auto financing due to higher rural penetration.

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