KARACHI: The State Bank of Pakistan (SBP) on Tuesday reduced the tenure of auto financing to three years from five years to discourage vehicle demand and support the falling rupee.
It was the second reduction in a period of nine months for auto financing. Previously, the central bank trimmed the maximum period for auto financing from seven years to five years on September 23, 2021.
The country is facing a severe economic crisis coupled with widening current account deficit and a sharp rupee depreciation. Recently, the government announced a complete ban on the import of luxury and non-essential items.
The banned items also included the motor cars in Completely Built Units (CBU). However, the import of cars in Completely Knocked Down (CKD) are subject to prior approval from the SBP for import of such vehicles.
The country imported CKD motor vehicles worth $1.40 billion during the first 10 months of the fiscal year 2021/22, compared with $892 million in the corresponding period of the last fiscal year, recording an increase of 57.09 per cent.
In the latest circular, the central bank said that the maximum tenure for vehicles above the engine capacity of 1,000cc has been reduced to three years. Similarly, the maximum tenure of the auto finance facility for vehicles with up to 1,000cc engine capacity has been decreased to five years from the previous tenure of seven years.
“Moreover, other amendments issued earlier, in BPRD Circular Letter No 29, dated September 23, 2021, will henceforth be applicable on financing for all the locally-assembled, manufactured vehicles, including financing for vehicles of up to 1,000cc engine and the locally-assembled, manufactured electric vehicles,” the SBP added.
The overall auto financing limits availed by one person from all banks and development finance institutions (DFIs), in aggregate, will not exceed Rs3 million, at any point in time; and the minimum down payment for auto financing was increased from 15 per cent to 30 per cent, according to the earlier SBP regulations.
However, in the latest regulations, the regulatory treatment of Roshan Apni Car products communicated earlier to Roshan Digital Account (RDA) participant banks will continue to remain effective.
The latest amendments will be applicable with immediate effect on the new financing facilities where the banks and DFIs have not granted the approval yet. However, all other instructions on the subject will remain unchanged.
The move is seen as the central bank’s attempt to curb the demand and import of cars to provide some support to the local currency, as it crossed Rs200-mark against the dollar.
Analysts believed that the latest measure will discourage car sales in the coming months. Besides, the SBP had already jacked up the policy rate by a massive 150 basis points to 13.75 per cent.
The sales of domestic manufactured cars recorded a growth of 50 per cent during the first 10 months of the fiscal year 2021/22. However, auto sales declined 18 per cent on a month-on-month basis to 22,370 units during April 2022 due to increased car prices and increased cost of financing.
