SBP cuts car loan tenure to three years State Bank of Pakistan

SBP cuts car loan tenure to three years

KARACHI: The State Bank of Pakistan (SBP) on Tuesday reduced the tenure for car loan to three years from five years in order to curb demand to support balance of payment and devaluation of Pakistan Rupee (PKR).

The SBP issued Circular No. 19 of 2022 to amend prudential regulations related to consumer financing.

READ MORE: SBP makes permission must for import of mobile phone, cars

The central bank amended the Regulation No. 11 to reduce the maximum tenure for car financing. According to the circular, the maximum tenure of auto financing has been reduced to three years from five years for vehicles above 1000CC engine displacement and to five years from seven years for vehicles up to 1000CC engine displacement and locally assembled / manufactured electric vehicles.

However, the regulatory treatment of Roshan Apni car product communicated earler to Roshan Digital Account (RDA) participant banks will continue to remain effective.

READ MORE: Car sales register 50% growth in 10MFY22

It is pertinent to mention that the government last week imposed a complete ban on import of luxury and non-essential items. The import of cars in Completely Built Unit (CBU) has also been banned under the new policy. The import of Completely Knocked Down (CKD) cars are still allowed for imports but with certain restrictions.

The SBP on May 20, 2022 issued a circular imposing restrictions for making import payments.

The SBP said it has been decided that banks, with immediate effect, shall seek prior permission from Foreign Exchange Operations Department (FEOD), SBP-BSC before initiating transactions for import of goods listed in the enclosed Annexure, subject to following conditions:

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The above requirement shall be applicable for all import transactions initiated by Authorized Dealers through (i) issuance/ amendment of letter of credit; (ii) registration/ amendment of contract; (iii) making advance payment; (iv) authorizing transactions on open account or collections basis;

The above requirement shall not be applicable on import transactions initiated by the Authorized Dealers on or before the date of issuance of this circular letter;

The banks may approach Director, FEOD, SBP-BSC, Head Office, Karachi, along with appropriate documents and its recommendation on a case to case basis;

The banks shall be required to suitably amend the importer’s bank profile in Pakistan Single Window to ensure that the aforementioned import transaction shall not be initiated on open account basis without prior permission from State Bank.

READ MORE: SBP increases interest rate by 150bps to 13.75%

It is noteworthy that the SBP has also increased the key policy rate to 13.75 per cent in an announcement on May 23, 2022. The rise in interest rate will increase the cost of loans which will subsequently reduce the demand for car loans.

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