SBP Restricts Car Financing in Pakistan

State Bank of Pakistan (SBP) has made amendments to its regulations regarding car financing in Pakistan. The SBP has put a ban on bank financing of imported cars as well as making financing of cars above 1000cc more difficult as per the new rules and regulations. These steps have been taken to curb inflation and trim the rapid loan growth in the automotive sector.

“The changes in the PRs effectively prohibit financing for imported vehicles, and tighten regulatory requirements for financing of domestically manufactured/ assembled vehicles of more than 1000 cc engine capacity and other Consumer Finance facilities like personal loans and credit cards.” stated the notification issued by State Bank of Pakistan (SBP).

Under the new restrictions, the State Bank of Pakistan (SBP) has reduced the auto / car finance tenure from seven (7) years to five (5) years, which will result in a higher monthly installment and make car financing harder for most people in Pakistan.

Furthermore, there has been a complete ban on car financing of imported vehicles. “This targeted step will help to moderate demand growth in the economy, leading to slower import growth and thus supporting the balance-of-payments.” read the notification by SBP.

Moreover, the minimum down payment for car financing has been increased from 15 percent to 30 percent, which will make auto financing less appealing and it will reduce new car demand in Pakistan. This will result in an increased demand for affordable used vehicles in the country.

Another restrictions placed by SBP includes an overall auto / car financing limit of Rs. 3 million by one person from all banks/DFIs at any point in time.

State Bank of Pakistan (SBP) has also reduced the tenure of personal loans from five (5) years to four (4) years and the Maximum debt-burden ratio, allowed to a borrower, has been decreased from 50 to 40 percent.

However, these regulations are not applicable to locally manufactured or assembled vehicles of up to 1,000cc engine capacity in order to protect lower to middle income category purchases.

The new regulations will also not be applicable to locally manufactured electric vehicles to promote use of clean energy as the car financing of these two categories of vehicles will continue to be governed by previous set of regulations.

“In order to encourage Roshan Digital Accounts and facilitate overseas Pakistan who have opened these accounts, regulatory instructions for Roshan Apni Car product of the banks or DFIs have also not been changed.” read the notification.

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