Car loans shrink by 55.3pc on non-filers restriction: State Bank

Car loans shrink by 55.3pc on non-filers restriction: State Bank

KARACHI: Car loans in Pakistan witnessed a significant decline of 55.3 percent during the first quarter of the current fiscal year, primarily attributed to government restrictions on non-filers purchasing cars.

According to a report released by the State Bank of Pakistan (SBP), banks extended car loans amounting to Rs5 billion in the first quarter (July – September) of fiscal year 2018/2019, compared to Rs11.2 billion in the same period last fiscal year.

The central bank’s report indicates that after consistently rising over the previous four quarters, the flow of consumer financing decelerated to Rs15.3 billion in Q1-FY19. The most notable impact was observed in the off-take of car loans during the same quarter, which more than halved compared to the corresponding period last year. The report also highlights that banks received significantly fewer applications for car loans in Q1-FY19 compared to the same quarter the previous year.

The primary reason behind this slowdown in car financing is the government’s decision to restrict non-filers from purchasing or registering vehicles. In line with government directives, two of the three largest auto assemblers had suspended advanced car bookings for non-filers in May 2018. This move has significantly impacted the demand for car loans in the market.

The central bank’s report underscores the decelerating impact of auto finance on overall consumer financing. However, this decline was offset to some extent by a Rs3.5 billion rise in personal loans during Q1-FY19. Data suggests that certain banks, particularly those with high branch penetration and a substantial customer base of salaried individuals, were able to make progress in the personal loan segment during the reviewed quarter.

The decline in car financing reflects the immediate and tangible impact of the government’s measures aimed at enhancing tax compliance and ensuring that non-filers contribute to the national exchequer. While these measures align with the government’s commitment to financial transparency and accountability, they have led to a notable contraction in the car financing segment, affecting both banks and consumers in the process.

As the automotive industry adjusts to these changes, stakeholders will be closely monitoring the market dynamics, and financial institutions may need to explore innovative strategies to adapt to the evolving landscape of consumer financing in Pakistan. The government’s continued focus on fiscal discipline and transparency is expected to shape the trajectory of financing trends in the coming quarters.