Tag: consumer credit

  • Factors behind the continuous decline in car financing in Pakistan

    Factors behind the continuous decline in car financing in Pakistan

    In January 2024, the automobile financing sector in Pakistan witnessed a significant downturn, as car financing recorded a notable decrease to Rs246.26 billion.

    This marks a 25.82 per cent year-on-year (YoY) decrease and a 1.98 per cent month-on-month (MoM) decrease compared to Rs331.98 billion in January 2023 and Rs251.25 billion in December 2023, respectively. The latest data from the central bank provides these insights.

    This decline in automobile financing extends to the nineteenth consecutive month, with a total decrease of Rs114.29 billion over the past 19 months.

    Several factors contribute to this decline, including higher interest rates, increased car prices, regulatory restrictions on acquiring loans, and elevated taxes on the import of automobiles and their parts.

    According to the State Bank of Pakistan (SBP) data, consumer financing for house building amounted to Rs207.62 billion by the end of January 2024.

    This reflects a 3.44 per cent YoY decrease compared to Rs215 billion in the same month last year. Looking at monthly changes, financing for house building saw a marginal 0.26 per cent MoM decrease compared to the previous month’s Rs208.15 billion.

    Financing for personal use stood at Rs243.1 billion, showing a 4.47 per cent YoY decrease and a 0.54 per cent MoM decrease.

    Consequently, the overall credit disbursed to consumers declined to Rs813.96 billion during the review month, registering a fall of 9.04 per cent YoY and 0.52 per cent MoM.

    The outstanding credit to the private sector also experienced a decline, decreasing by 0.76 per cent YoY to Rs8.35 trillion in January 2024. On a monthly basis, this represents a 2.21 per cent decrease compared to the credit of Rs8.54 trillion in December 2023.

    Analysing credit distribution to the private sector, loans to the manufacturing sector amounted to Rs4.81 trillion in the review period, showing a slight 0.33 per cent YoY increase. However, on a monthly basis, there was an 0.89 per cent MoM decline, as December recorded loans to this sector at Rs4.85 trillion.

    Borrowing from the construction sector stood at Rs190.15 billion in January 2024, experiencing a 0.97 per cent YoY decrease and a 5.05 per cent MoM decrease compared to the previous month.

    Looking ahead, the data indicates that loans to the agriculture, forestry, and fishing sectors rose to Rs397.27 billion in the month under review, marking a significant 16.95 per cent YoY increase.

    However, on a sequential basis, loans to this sector recorded a fall of 4.82 per cent MoM.

  • High interest rates and taxes lead to 20.90% drop in car financing in Pakistan

    High interest rates and taxes lead to 20.90% drop in car financing in Pakistan

    In a notable shift, the landscape of automobile financing in Pakistan has undergone a substantial transformation, with figures from the State Bank of Pakistan (SBP) indicating a significant decline. The data, released by SBP, unveils a marked decrease in car financing, plummeting to Rs285.19 billion in July 2023. This represents a notable 20.90 per cent year-on-year (YoY) decrease and a 2.91 per cent month-on-month (MoM) decrease when compared to the figures from July 2022, which stood at Rs360.55 billion, and June 2023, which registered at Rs293.73 billion.

    The primary contributors to this downward trajectory are multi-faceted. Firstly, the imposition of higher interest rates has played a pivotal role in reshaping the car financing landscape. Additionally, the surge in car prices has also contributed significantly to this downturn. Moreover, regulatory restrictions governing the acquisition of loans have created a notable barrier, further impacting the market. Furthermore, the imposition of elevated taxes on the import of automobiles and their integral parts has compounded the challenges faced by the automobile financing sector.

    Contrastingly, in a separate but related sphere, consumer financing for house building displayed a contrasting narrative. SBP’s data reveals that by the conclusion of July 2023, consumer financing for house building registered at Rs211.11 billion, marking a commendable 4.82 per cent YoY increase. According to Mettis Global, this uptick can largely be attributed to SBP’s proactive measures to stimulate the housing and construction sector within the nation. However, in terms of monthly changes, the figures remained relatively static, with a minor decline of 0.57 per cent.

    Meanwhile, financing for personal use, amounting to Rs250.24 billion, experienced a marginal 0.09 per cent YoY decrease. Similarly, on a monthly basis, financing within this category saw a slight downturn of 0.95 per cent. Consequently, the cumulative credit extended to consumers in various segments reached Rs851.22 billion during the assessment month. This overall credit value reflected a notable 4.70 per cent YoY decline and a 0.99 per cent MoM reduction.

    Furthermore, the credit scenario within the private sector depicted a nuanced picture. Outstanding credit to the private sector encountered a minor 0.06 per cent YoY decrease and a slightly more pronounced 1.12 per cent MoM reduction, resting at Rs8.19 trillion in July 2023. In contrast, loans granted to the manufacturing sector exhibited an encouraging 1.12 per cent YoY increase, amounting to Rs4.48 trillion during the review period. However, on a monthly scale, the loans within the manufacturing sector dipped by 1.44 per cent MoM.

    In summation, the marked decline in car financing, as evidenced by SBP’s recent data, underscores the multifaceted challenges that the automobile financing sector in Pakistan is currently grappling with. While interest rates, car prices, and regulatory curbs have contributed to this downward trend, other sectors such as house building and manufacturing loans have demonstrated distinct trajectories. As the nation navigates through these financial dynamics, stakeholders remain vigilant in monitoring and adapting to these evolving circumstances.