In January 2024, Pakistan’s automobile financing sector saw a substantial decrease of 25.82% year-on-year, dropping to Rs. 246.26 billion from Rs. 331.98 billion in January 2023. This decline continued with a 1.98% month-on-month decrease from December 2023, making it the 19th consecutive monthly decline and totaling a reduction of Rs. 114.29 billion, as reported by the State Bank of Pakistan (SBP).
Causes of the Decline
The decline can be attributed to several factors, including higher interest rates making borrowing more expensive and the continuous rise in car prices, making vehicles less affordable for average consumers. Additionally, stricter loan regulations and increased taxes on imported vehicles and parts have added to the challenges faced by lenders and borrowers in the automobile financing market.
Impact
Besides automobile financing, house building finance decreased by 3.44% year-on-year to Rs. 207.62 billion, and personal use financing dropped by 4.47% year-on-year to Rs. 243.1 billion, resulting in a total consumer credit decline of 9.04% year-on-year to Rs. 813.96 billion.
Despite the negative trend in consumer financing, there are some positive signs in the broader credit landscape. While overall outstanding credit to the private sector slightly decreased by 0.76% year-on-year to Rs. 8.35 trillion, loans to the manufacturing sector saw a small increase of 0.33% year-on-year to Rs. 4.81 trillion. Additionally, loans to the agriculture, forestry, and fishing sectors grew by 16.95% year-on-year to Rs. 397.27 billion.
In summary, the significant decline in automobile financing in Pakistan reflects the broader challenges facing the economy, such as high interest rates, inflation, and taxation policies. Addressing these issues will be crucial to restoring consumer confidence and promoting growth in the auto industry and the economy overall.
