Daily Times

Car financing by banks in Pakistan soared to an all-time high of Rs326 billion in August. The financing became affordable for more people because of the less interest rates amid the coronavirus pandemic.

The August figure for car loans depicted a 46.8% year-on-year jump. Mostly because of the low interest rates, a brokerage said, quoting central bank’s data on Tuesday.

Car loans increased 3.8% month-on-month in August, while they stood at Rs314 billion in July, said Arif Habib Limited in a report.

“The growth in auto financing during Q3FY21 is mainly attributed to low interest rate environment, increasing prices of passenger cars, which affected the consumers’ capacity to buy on cash, and new entrants in the automobile market that provided wider options to the consumers,” A source reported the State Bank of Pakistan (SBP) as saying in its third quarterly report on Pakistan’s economy for fiscal year 2021.

This was consistent with an across the board increase in the sales of auto assemblers during the period under review. In particular, cars below 1,000cc and jeeps were in higher demand, the SBP report said.

A slow down in auto financing is expected by analysts due to the high cost of borrowing, the publication reported. Adding that the central bank raised interest rates by 25 basis points to 7.25% on Monday to moderate demand growth.

Accommodative financial conditions had provided critical support to growth recovery since the start of FY2021. The Monetary Policy Committee (MPC) noted this as per the publication.

Private sector credit grew by more than 11% during fiscal year 2021. It grew after historic cuts in the policy rate and the introduction of SBP’s coronavirus-related support packages.

It grew on the back of consumer loans. And followed by a broad-based expansion in credit for fixed investment and finally working capital loans.

“The MPC felt that some macro prudential tightening of consumer finance may also be appropriate to moderate demand growth as part of the move toward gradually normalising monetary conditions,” the publication reported the committee as saying.

Meanwhile, bank lending to consumers increased to 34% year-on-year in August. Consumer loans such as home, car and personal, and credit cards rose to Rs742 billion in August from. It was Rs550 billion a year ago.