Karachi, Pakistan, 09/24/2021 / Karachi News Bureau /
The explosion of trade and current account deficits has forced the State Bank of Pakistan (SBP) to curb the growth of imports through regulatory changes and to shorten the limit and term of financing, especially for imported vehicles.
The central bank revised its prudential rules for consumer finance 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 government is experiencing a major balance-of-payments crisis, with a rising trade imbalance as a result of very high import growth, which was previously referred to as vital for economic growth. The current account deficit alone increased to $1.5 billion in August, showing that it will well exceed the SBP’s forecast of 2 to 3% of GDP for FY22 by a significant margin. The current trajectory plainly indicates that the country is in for a substantially larger deficit.
“The changes in the prudential regulations effectively prohibit financing for imported vehicles, and tighten regulatory requirements for financing of domestically manufactured or assembled vehicles of more than 1,000cc engine capacity and other consumer finance facilities like personal loans and credit cards,” said the SBP.
The maximum duration of vehicle loan has been decreased from seven to five years as a result of new rules. The auto sector is thriving, despite the fact that demand remains quite high.
The maximum term of a personal loan has been decreased from five to four years, which is another step toward reducing the usage of personal loans for automobile purchases.
According to the new regulations, the maximum debt-burden ratio allowed to a borrower has been reduced from 50 to 40%.
It further stated that the total vehicle finance limitations available to one individual from all banks and DFIs would not exceed Rs3,000,000 at any moment, and that the minimum down payment for auto financing has been increased from 15% to 30%.
“All these steps have been taken to slow down imported vehicles and easy financing for it. It will work to reduce the buying of imported as well as local luxury vehicles,” head of research at Pak-Kuwait Investment Company, Samiullah Tariq told.
He stated that there is a huge demand for vehicles and that it might take up to six months to acquire a car after purchasing it from a firm. One of the causes for greater demand was easy access to finance, which was reduced by lowering the amount of funding and the duration of credit.
Analysts also highlighted that the recent hike in interest rates should be seen in the same light — the expensive money would restrict consumer financing. The SBP raised interest rates by 25 basis points to 7.25 percent.
The State Bank further stated that, in order to safeguard lower to middle-income buyers, these new rules do not apply to locally made or assembled cars with engine capacities of up to 1,000cc.
Source: Submit123News
