Pakistan’s automobile financing sector has witnessed a significant downturn, with a staggering 25.82% year-on-year drop to Rs. 246.26 billion in January 2024, compared to Rs. 331.98 billion in January 2023.

Additionally, there was a 1.98% month-on-month decrease from December 2023. These numbers, revealed by the State Bank of Pakistan (SBP), mark the 19th consecutive monthly decline in automobile financing, amounting to a total reduction of Rs. 114.29 billion.

Factors Contributing to Decline

Several factors contribute to this decline. Firstly, higher interest rates have made borrowing more expensive, discouraging potential buyers from seeking financing. Secondly, the continuous rise in car prices has made vehicles less affordable for the average consumer, further dampening demand for financing.

Moreover, stricter loan regulations and elevated taxes on imported vehicles and parts have added to the challenges faced by both lenders and borrowers in the automobile financing market.

The Impact

The downward trend in consumer financing extends beyond automobiles. House building finance experienced a 3.44% year-on-year decrease to Rs. 207.62 billion, while financing for personal use dropped by 4.47% year-on-year to Rs. 243.1 billion. Consequently, total consumer credit disbursed saw a notable decline of 9.04% year-on-year to Rs. 813.96 billion.

Despite the bleak picture in consumer financing, there are some positive indicators 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 marginal increase of 0.33% year-on-year to Rs. 4.81 trillion.

Furthermore, loans to the agriculture, forestry, and fishing sectors experienced a significant uptick, rising by 16.95% year-on-year to Rs. 397.27 billion.

In conclusion, the sharp decline in automobile financing in Pakistan reflects the broader challenges facing the economy, including high interest rates, inflation, and taxation policies. Addressing these issues will be crucial to reviving consumer confidence and stimulating growth in the auto industry and the economy as a whole.