Consecutive 13-Month Drop in Bank Financing for Cars

Jawad

29 Aug 2023

197

Consecutive 13-Month Drop in Bank Financing for Cars

Persistent Weak Car Demand and Escalating Interest Rates Continue to Haunt Auto Industry as Bank Financing Declines for the 13th Consecutive Month in July 2023

The automobile sector is grappling with a prolonged period of subdued car demand and the relentless surge in interest rates, with bank financing experiencing yet another decline, marking the 13th consecutive drop as of July 2023. According to the reputable source, Dawn, the overall car loan figure tumbled from Rs. 293.7 billion in June to Rs. 285.2 billion.

Data sourced from the State Bank of Pakistan (SBP) reveals a peak in auto financing at Rs. 368 billion in June 2022, followed by a consistent downturn due to the intensified interest rates that now stand at a considerable 22%. Among the factors contributing to this decline are constraints in demand and the continual escalation of vehicle costs.

As a consequence, SBP took measures to curtail the repayment tenure while simultaneously raising the ceiling for vehicle loans to Rs. 3 million. Regrettably, these steps have adversely impacted the sales of local vehicle assemblers.

Fahad Rauf, the Head of Research at Ismail Iqbal Securities (IIS), highlighted the substantial hurdle posed by the current 25% interest rate, compounded by SBP's initiatives to suppress auto demand. Rauf, referencing SBP's data, underscored that the acquisition of new vehicles through bank loans is not witnessing growth amid net retirements.

Rauf disclosed that speculations are rife within the market regarding the trajectory of interest rates, vacillating between further increments and maintaining the status quo. Such conjectures are driven by mounting concerns over inflationary pressures and the lingering apprehension of additional vehicle price hikes linked to the devaluation of the rupee.

He warned that the automotive sector is poised to grapple with its challenges until at least December, with the sales landscape potentially continuing to present worrisome patterns into the first half of 2024. Prospects of substantial drops in interest rates, vehicle prices, or the stability of the rupee against the dollar remain elusive.

CEO of Indus Motor Company (IMC), Ali Asghar Jamali, painted a grim picture of the auto industry's prevailing situation, labeling it as the most severe economic downturn it has ever encountered. The year 2023 witnessed a confluence of local and global disruptions, coupled with restrictions on Completely Knocked Down (CKD) kit imports, resulting in plant shutdowns and substantial job losses within the industry.

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