Auto loans in Pakistan have been consistently decreasing for 16 months in a row, hitting Rs264 billion by the end of October. This marks a 3% drop from the previous month and a significant 23.5% decline compared to the same period last year, according to data from the State Bank of Pakistan (SBP).
Over the past 16 months, there has been a total reduction of Rs104 billion, with auto financing standing at Rs368 billion at the end of June 2022.
The decline is primarily linked to a substantial 44% decrease in the sales of cars, light commercial vehicles, vans, and pickups during the first four months of fiscal year 2024. The number of units sold plummeted from 48,573 to 27,163 in this period, reflecting challenges in the automotive market.
Various factors contribute to this downturn, including escalating vehicle prices, costly auto financing options, and disruptions in production caused by parts shortages. These shortages are a result of SBP restrictions on opening letters of credit for imports.
Despite these challenges, there is a glimmer of hope for improvement in auto financing. Topline Securities CEO Mohammed Sohail suggests the potential for a positive change with the decline in the Karachi Interbank Offered Rate (Kibor).
Additionally, he speculates that if the central bank reduces the policy rate, it could encourage consumers to turn to banks for auto loans, potentially revitalizing the market.
