KARACHI: It seems that quality is not one of the key drivers of growth of the local motor vehicle assembling industry in Pakistan, as easy auto financing remained a major contributor to auto sector's trade in 2016.
According to the State Bank of Pakistan (SBP), auto financing increased by 32 percent to Rs 30.7 billion in 2016 and its share in consumer financing grew as well.
"This higher growth in auto financing is backed by consistently higher auto production which has inched up by 21.0 percent in 2016 over last year and could rise further if the planned investment takes place", stated the SBP.
The central bank further added that this high rise in financing activities may be attributed to a combination of factors. The lagged effect of consistent easy monetary policy, ample availability of liquidity owing to high deposit growth and maturing PIBs, China-Pakistan Economic Corridor PEC related activities, and positive economic outlook are the major driving factors behind the impressive growth in advances.
'Since November 2014 until December 2016, the SBP has reduced the policy rate by 425 bps which is well translated into 373 bps reduction in Weighted Average Lending Rate (WALR) during the corresponding period".
The year on year (YoY) growth in gross advances, however, picked up pace in 2016 after remaining flat in 2015.
Banks' reduced investment in government papers, maturity of PIBs/Sukuk, and higher growth in deposits raised available funds for advances. The banking sector recorded a reasonable performance during the quarter under review.
During 2016, locally assembled automobile sales witnessed enormous growth over the previous year as total sales of locally-assembled vehicles increased to 268,379 units in 2016, according to data released by the Pakistan Automotive Manufacturers Association (PAMA).
The growth momentum of consumer financing has continued with a 4.1 percent rise in the fourth quarter of 2016; almost double the growth of 2.2 percent in the same quarter of 2015.
Overall, all categories of consumer finance (credit cards, auto finance, mortgage finance, personal loans) has seen a positive growth. The key contributor in the rise of consumer financing has continued to be auto loans, with a 7.8 percent growth in the fourth quarter of 2016 (September-December).
"Auto financing has been on the rise since the last few years and its share in consumer financing has been increasing as well", affirmed the SBP.