There will be no immediate impact from State Bank's restrictions on auto financing.

ByShehryar Makhdoom | Published date:

The State Bank of Pakistan (SBP) decided a few weeks ago to limit auto-financing to reduce supply, restrict imports, and create a favorable balance of payments. It updated regulations governing consumer lending to incorporate the following provisions about car loans:

  • With a seven-year term limit, employees can now serve for only five years at most. The down payment requirement has been raised from 15% to 30%.
  • The total auto loan that a single person can get from all banks/DFIs combined would never exceed Rs. 3,000,000.

The restrictions imposed by SBP will go into effect on what date?

As reported by Dawn News, the State Bank of Pakistan (SBP) has placed limits on the country's financial institutions, and the consequences of these restrictions will not be felt until the first quarter of the calendar year 2022.

Due to Pakistan's low benchmark lending rates, auto finance accounts for 30-40% of the country's total automobile sales. According to industry insiders, automakers are now sold out of automobiles for the next three to four months, so the new SBP terms won't immediately influence sales volume until that period has passed.

According to Arif Habib Limited's Head of Research, Tahir Abbas, sales are expected to remain robust because of a backlog of in-car deliveries caused by a mix of increased demand and limited inventory.

Although the sales will undoubtedly decrease when fresh inventory begins to withstand the influence of SBP's conditions, and Abbas anticipates that the limits will not affect sales until FY 2023.

Officials in Pakistan's government are working to approve a new auto policy containing extra reliefs and incentives for new manufacturers looking to set up shop in the country soon.

On the sidelines of the Pakistan Automobile Industry Roundtable Seminar, Pakistani Ambassador to China Moin-ul-Haque announced that Pakistan's new policy aims to increase the country's annual vehicle manufacturing to eight million units in the next five years.

He disclosed that several new Chinese auto manufacturers are establishing strategic partnerships with Pakistani companies to access the local automobile market.

This suggests that automobile purchasers will have a more excellent selection of vehicles to choose from in the coming days, which will lead to a rise in demand.