Auto financing hits record high in July
Auto financing by banks in Pakistan soared by 99 billion rupees (or 46%) in the past year to an all-time high of 314 billion rupees in July, as financing became affordable for a larger population. number of people following a significant reduction in the benchmark interest rate in the context of the Covid-19 pandemic.
The central bank had cut the benchmark interest rate by a whopping 625 basis points between March and June 2020 to 7% to pave the way for cheaper bank financing for businesses and individuals to help them do so. in the face of the pandemic.
The development, coupled with the government’s focus on increasing auto production and sales to stimulate the economy, has encouraged more people from different income groups (middle to upper income groups) to to buy a car.
More importantly, the introduction of new makes and models during the pandemic – primarily by jeep (Sport Utility Vehicle – SUV) and over 1,000 engine segments – has prompted a large number of people to spend savings through to reducing spending during the pandemic to buy a car.
In addition, a recovery in economic activities has increased the income of the populations, particularly in the agricultural sector. Others have saved more due to the suspension of international travel and tourism amid the Covid-19 pandemic.
An increase in workers’ remittances to the country also prompted people to spend more on luxury cars during the year.
Auto financing has continued to grow for the last 13 consecutive months (July 2020 to July 2021). It has maintained the record-breaking funding streak in recent months, according to figures compiled by AHL Research.
The record number of financings has also been accompanied by astonishing growth in auto sales over the past year. Previously, the industry had seen production and sales halt for a few months following the Covid-19 outbreak in February 2020 in the country.
Automakers sold 20,699 units in July alone, 104% more than 10,123 units sold in the same month last year. Likewise, car sales increased 90% to 238,000 units in the entire prior fiscal year 2020-21.
“There is still a big room for growth in car sales and auto financing, as Pakistan was among the counties where having one car per 1,000 people was lower,” said BMA Capital executive director. , Saad Hashmey, in conversation with The Express. Tribune.
“The current low interest rate has made auto financing affordable. At the same time, the low interest rate scenario also made it possible to meet pent-up demand (backlog) for cars. “
Auto finance would continue to stay high until the interest rate stays single digits in the future. In addition, the government policy of supporting automobile manufacturing and the introduction of electronic cars would continue to find new buyers in the country, he said.
“Those people who have accumulated savings due to the suspension of international travel and tourism amid the Covid-19 pandemic and the introduction of high-end cars (like SUVs) have agreed to spend more to buy a car, ”said Pak-Kuwait Investment Company (PKIC) Chief Research Officer Samiullah Tariq.
In addition, the low interest rate scenario, increasing farm incomes and increasing worker remittances have gained momentum in car sales and auto financing, he said. .
“The auto sector went from a sharp contraction (37.7%) last year to double-digit growth (23.4%) in July-March FY21. The increase in economic activities has had a positive effect almost everywhere, ”the State Bank of Pakistan said in July.
“Several factors played a role in this performance. Low interest rates, the relative stability of automobile prices and the introduction of new models have facilitated the growth of the automotive sector… The impact of the low interest rate environment is evident from the increase consumer finance for the purchase of vehicles to the tune of 73.6 billion rupees in July-March. FY21 against 3.2 billion rupees last year.
The stability of vehicle prices over the period also helped support auto production. “For example, car prices, which jumped 20.8% in FY20, rose 3.4% in July-March FY21. (at the time) the stability of the exchange rate helped to keep prices from rising during the review period, ”he said.
Posted in The Express Tribune, August 28e, 2021.
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