SBP tighten regulations for Auto Financing
State Bank of Pakistan (SBP) has tightened regulators for auto financing to moderate import bills.
State Bank of Pakistan has revised Prudential Regulations for Consumer Financing aimed at reducing import bill and demand growth.
The Monetary Policy Committee observed tightening of consumer finance may result in moving towards gradually normalizing monetary conditions.
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SBP released new regulations for auto financing which has reduced the auto financing facility tenure to five years from seven years.
Moreover, the minimum down payment is increased from 15% to 30% of the value of the vehicle, and the overall financing limit has been caped to Rs3mn that can be availed by one person.
It restricted the total monthly amortization payments of consumer financing to 40% of the net disposable income of the prospective borrower against 50% earlier.
Banks/DFIs may waive the requirement of 40% Debt Burden (previously 50%) in case a Credit Card and Personal loan/financing limit is properly secured through liquid assets (as defined in prudential regulations) with a minimum of 30% marge, Foundation Securities said in a report.
Imported vehicles (Used or New) shall not be eligible for auto financing from banks/DFIs. These regulations would be applicable on locally assembled/manufactured vehicles having a capacity of more than 1000cc.
However, these regulations will not be applicable on 1) financing for locally assembled/manufactured vehicles of up to 1000cc engine capacity 2) Roshan Apni Car product of banks, and 3) locally assembled/manufactured Electric Vehicles.
To highlight auto financing has reached an all-time high of Rs326 billion for the month of Aug’21, as per SBP.
The following regulations would hamper the growth of high-end vehicle manufacturers.
HCAR would be most affected by these prudential regulation tightening, in our universe.
However, INDU would be least affected given fewer sales reliance on auto financing respectively due to higher rural penetration.
PSMC is immune to these revised regulations given an insignificant share of 1000cc+ segment in total company sales mix i.e., 3% of Suzuki Swift.
