SBP slows the financing of imported vehicles – Journal

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• Maximum duration of automobile financing reduced from seven to five years
• Minimum deposit for automobile financing increased from 15pc to 30pc
• The central bank maintains its pace will help moderate demand growth in the economy

KARACHI: The explosion in trade and current account deficits forced the State Bank of Pakistan (SBP) to slow import growth with changes in prudential regulations and reduce the limit and period of funding, in especially for imported vehicles.

The central bank revised the prudential regulation of consumer financing on Thursday. “This targeted step will help moderate demand growth in the economy, leading to slower import growth and thus supporting the balance of payments,” the SBP said.

The country is facing a serious balance of payments problem with a growing trade deficit due to very strong import growth which was previously considered essential for economic growth. The current account deficit reached $ 1.5 billion in August alone, indicating that it could exceed the SBP projection of 2-3% of GDP for FY22 with a large margin. The current trend clearly shows that a much higher deficit awaits the country.

“The changes to prudential regulations effectively prohibit the financing of imported vehicles and strengthen regulatory requirements for financing domestically manufactured or assembled vehicles with cylinder capacity greater than 1,000 cc and other consumer finance facilities. such as personal loans and credit cards, ”the SBP said.

According to new changes, the maximum duration of auto financing has been reduced from seven to five years. The automotive industry is flourishing while demand is still very high.

The maximum personal loan term has been reduced from five to four years – another step in reducing the increased use of personal loans that have been used to purchase vehicles.

The amended regulations stated that the maximum debt ratio allowed to a borrower was reduced from 50 to 40 percent.

He further stated that the overall auto finance limits used by one person from all banks and DFIs, in total, will not exceed Rs 3,000,000 at any time, while the minimum down payment for auto finance has been increased by 15 to 30%.

“All these measures have been taken to slow down imported vehicles and facilitate their financing. This will reduce the purchase of imported and local luxury vehicles, ”said Samiullah Tariq, research manager at Pak-Kuwait Investment Company.

He said the demand for cars is high and it takes up to six months to receive a car after buying it from a company. Ease of access to finance was one of the reasons for the higher demand which was hampered by the reduction in the amount of funding and the duration of funding.

Analysts also pointed out that the recent interest rate hike should also be seen in the same context – expensive money would cut consumer financing. The SBP increased the interest rate by 25 basis points to 7.25 pc.

The State Bank further stated that with the goal of protecting purchases from lower to middle income categories, these new regulations do not apply to locally manufactured or assembled vehicles with a maximum displacement of 1,000 cc. .

“They are also not applicable to electric vehicles manufactured locally to promote the use of clean energy,” said the SBP, adding that the financing of these two categories of vehicles would continue to be governed by the previous regulations.

“In order to encourage Roshan digital accounts and facilitate overseas Pakistan who opened these accounts, the regulatory instructions for Roshan Apni Car product from banks or DFIs have also not been changed,” said the SBP.

Analysts said the impact of prudential regulatory changes would be visible after a few months, but would not slow down economic activity.

The import of road motor vehicles in FY21 was $ 2.142 billion compared to $ 1.276 billion the previous year, reflecting strong growth in imports. In July-August FY22, the import of the same was $ 495 million compared to $ 160 million in the same period last year.

Posted in Dawn, le 24 September 2021

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