Car loans drop over 18 per cent YoY amid rising borrowing costs

WEB DESK: Auto financing in Pakistan has dropped for the 26th month in a row, reaching Rs227.3 billion in August 2024, a slight fall of 0.3 per cent compared to Rs228 billion in July.

On a yearly basis, car financing decreased by 18.25 per cent. In August 2023, the amount of financing stood at Rs278.05 billion, showing a significant decline over the past year.

According to the State Bank of Pakistan (SBP), several factors have contributed to this slowdown in auto loans. High borrowing costs and the government’s efforts to reduce its spending have played a big role in lowering the demand for credit.

Despite the central bank lowering interest rates since June, private-sector borrowing has not increased.

Last week, the State Bank of Pakistan (SBP) cut its key policy rate by 200 basis points, bringing it down to 17.5 per cent. This was the third reduction in a row, totaling a 450bps drop since June 2024. Despite this, political and economic uncertainty continues to affect fixed investment loans.

Other factors include slightly lower production costs, which have reduced the need for working capital in some industries, even though large-scale manufacturing (LSM) output has not shrunk as much. The only exception has been gas prices, which were raised from November 2023 onwards.

Looking at other consumer loans, the SBP data showed that loans for house building stood at Rs202.4 billion by the end of August 2024, down 3.39 per cent from the previous year. Month-on-month, house-building loans decreased by 0.2 per cent, compared to Rs202.8 billion in July.

Loans for personal use dropped by 3.89 per cent year-on-year to Rs238.57 billion, and month-on-month, they fell by 0.16 per cent.

Overall, consumer loans declined by 4.92 per cent year-on-year to Rs803.94 billion, though there was a small month-on-month increase of 0.24 per cent, from Rs802 billion in July.

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