Factors behind the continuous decline in car financing in Pakistan

In January 2024, the automobile financing sector in Pakistan witnessed a significant downturn, as car financing recorded a notable decrease to Rs246.26 billion.

This marks a 25.82 per cent year-on-year (YoY) decrease and a 1.98 per cent month-on-month (MoM) decrease compared to Rs331.98 billion in January 2023 and Rs251.25 billion in December 2023, respectively. The latest data from the central bank provides these insights.

This decline in automobile financing extends to the nineteenth consecutive month, with a total decrease of Rs114.29 billion over the past 19 months.

Several factors contribute to this decline, including higher interest rates, increased car prices, regulatory restrictions on acquiring loans, and elevated taxes on the import of automobiles and their parts.

According to the State Bank of Pakistan (SBP) data, consumer financing for house building amounted to Rs207.62 billion by the end of January 2024.

This reflects a 3.44 per cent YoY decrease compared to Rs215 billion in the same month last year. Looking at monthly changes, financing for house building saw a marginal 0.26 per cent MoM decrease compared to the previous month’s Rs208.15 billion.

Financing for personal use stood at Rs243.1 billion, showing a 4.47 per cent YoY decrease and a 0.54 per cent MoM decrease.

Consequently, the overall credit disbursed to consumers declined to Rs813.96 billion during the review month, registering a fall of 9.04 per cent YoY and 0.52 per cent MoM.

The outstanding credit to the private sector also experienced a decline, decreasing by 0.76 per cent YoY to Rs8.35 trillion in January 2024. On a monthly basis, this represents a 2.21 per cent decrease compared to the credit of Rs8.54 trillion in December 2023.

Analysing credit distribution to the private sector, loans to the manufacturing sector amounted to Rs4.81 trillion in the review period, showing a slight 0.33 per cent YoY increase. However, on a monthly basis, there was an 0.89 per cent MoM decline, as December recorded loans to this sector at Rs4.85 trillion.

Borrowing from the construction sector stood at Rs190.15 billion in January 2024, experiencing a 0.97 per cent YoY decrease and a 5.05 per cent MoM decrease compared to the previous month.

Looking ahead, the data indicates that loans to the agriculture, forestry, and fishing sectors rose to Rs397.27 billion in the month under review, marking a significant 16.95 per cent YoY increase.

However, on a sequential basis, loans to this sector recorded a fall of 4.82 per cent MoM.