SBP cut down the maximum tenure of car financing to five years and doubled the minimum down payment to 30%
The State Bank of Pakistan (SBP) on Friday tightened prudential regulations for consumer financing, cutting down the financing limit and tenure for car financing, particularly for imported vehicles.
The move will help slow down rapid import growth mainly in the auto sector, said the State Bank of Pakistan in a statement.
“The SBP has revised prudential regulations (PRS) for consumer financing and this targeted step will help to moderate demand growth in the economy, leading to slower import growth and thus supporting the balance-of-payments,” said the bank.
Sharp rise in Pakistan’s current account deficit
Pakistan’s current account deficit surged 81% month-on-month to $1.476 billion in August from $814 million in the previous month due to a sharp rise in imports, outdoing a recovery in exports. This compares to a surplus of $255 million in August 2020.
This jump in the current account deficit was primarily due to a higher trade deficit as imports kept increasing amid robust economic activity.
The new regulations
Following changes have been made in the new regulations:
- The maximum tenure of car financing has been cut down to five years from seven years
- The minimum down payment for auto financing has been doubled to 30% from 15%
- The maximum tenure of personal loan has been decreased from five to four years
- The maximum debt-burden ratio, permitted to a borrower, has been cut down from 50% to 40%
- Aggregate car financing availed by a single consumer from all banks/DFIs shall not exceed Rs. 3, 000,000, at any point
The state bank said the changes in the prudential regulations effectively restrict financing for imported cars, and tighten regulatory requirements for financing of locally manufactured/assembled vehicles of more than 1,000 cc engine power.
The new regulations are also not applicable to domestically manufactured electric vehicles to promote use of clean energy. The financing of these two categories of vehicles will continue to be governed by the previous set of regulations, clarified the SBP.