Auto financing hits record high


KARACHI:

Auto financing by banks hit a record high of Rs 297.5 billion in Pakistan as consumers’ appetite for vehicle ownership jumped into high gear, apparently due to the availability of financing at a relatively low interest rate despite the financial risks associated with the Covid-19 pandemic.

The euphoria of owning a car has reached a new high against the backdrop of the introduction of new models and brands by new entrants, particularly in the category of cars with engines of 1000 cc or more and segments of jeep (Sport Utility Vehicles / SUV).

Auto financing by banks jumped from Rs86.5 billion or 41% in the first 11 months (July-May) of fiscal 2021 to Rs279.5 billion in May 2021 from Rs211.11 billion at the end of June 2020 , the Pakistani central bank reported the other day.

Such growth in demand for auto financing was last seen under President Pervez Musharraf when banks, with abundant liquidity, lent large sums for cars without checking borrowers’ abilities if they were. able to repay the debt. Later, the auto finance bubble burst when a large number of people failed to repay the auto finance. It caused a lot of noise in the banking industry and in various cities as well.

The significant drop in the benchmark interest rate from 625 basis points between March and June 2020 to 7% so far has created a huge demand for auto financing. “The banks passed on the benefits of the lower rates to auto consumers. This made auto finance products attractive, ”said Ahmed Ali Siddiqui, senior vice president of product development and sharia compliance at Meezan Bank. L’Express Tribune.

Lily: Pakistan rolls out plans to harness global green finance lanes

Second, the Covid-19 epidemic had put decisions on buying a new car on hold, which hit the auto industry hard. Manufacturers did not produce a single car or sell a single car for a few months in the wake of the Covid-19 epidemic. They faced the terrible situation which has now turned into a high demand for cars.

The broader recovery of the economy in general and the auto industry in particular after the pandemic has generated double the demand for cars; one the pent-up demand and second the demand as usual. “The situation has shifted auto financing into high gear,” he said.

“Banks that always offer car financing on no document (without checking borrowers’ ability to repay debt) are doomed (as they did in the days of President Musharraf),” he said. -he declares.

Islamic banks have never offered such reckless auto financing. Today, they are the leader in the automotive finance segment in Pakistan. “The share of Islamic banks in total auto financing is around 60%,” he said.

Arif Habib Limited, head of research Tahir Abbas, argued that lower rates remained the main factor behind the jump in auto finance. This was largely supported by the recovery of the national economy.

The turnaround in agronomy has created additional demand for cars. Almost all of the major crops, with the exception of cotton, have recorded exceptional yields this year. “Whenever agronomy is in full swing, there is an additional demand for cars,” he said.

The emergence of new entrants in the automotive assembly industry, especially in the expensive SUV segment, the variety of brands and increased competition have all contributed to the significant increase in demand, he said. .

Read more: Tarin seeks contributions on a fundraising initiative

More importantly, the import of used cars has declined dramatically as a result of government action against the abuse of the used car policy. It also supported growth.

Demand may continue to rise following the recent offer of auto finance to non-resident Pakistanis for their family members in the country.

The central bank’s second quarterly report (October-December FY21) on the state of the Pakistani economy released recently added that the stability of the rupee-dollar exchange rate is also supporting the growth of the automotive sector, the majority of auto parts. being imported into Pakistan.

The car and jeeps segment was the main contributor to this growth in Q2-FY21. “Multiple factors including lower interest rates, stable exchange rate and increased competition from new entrants have positively impacted this segment,” State Bank of Pakistan said in The report.

“The fall in interest rates has contributed to an increase in vehicle financing… The stability of the exchange rate has also facilitated the production of the automotive sector, as it has made it possible to control the costs of imported components. At the same time, there has been interest in the models introduced by new entrants to the market, especially in the car and jeeps segment.

“That said, the growth of the auto industry may have been underestimated in recent quarters as production data from some of these new players has yet to be included in the LSM index,” he added.

Posted in The Express Tribune, July 3rd, 2021.

As Business on Facebook, to pursue @TribuneBiz on Twitter to stay informed and join the conversation.



Source link

Previous Diversity star Inside Jordan Banjo's HUGE new home with huge backyard, family kitchen, and space for his expensive cars
Next What to expect if the 'peak of everything' has already happened and the markets are feeling the force of gravity again