SBP revises rules for consumer financing

• Central bank revises prudential regulations for consumer financing
• The maximum tenure of auto financing has been cut down to five years.
• The minimum down payment for car financing has also been raised to 30%.
• The maximum tenure of personal loan has been reduced from five to four years
  

KARACHI: The State Bank of Pakistan (SBP) on Friday revised prudential regulations for consumer financing, reducing the financing limit and period for auto financing, particularly for imported cars.

This targeted step will help to moderate demand growth in the economy, leading to slower import growth which will support the balance-of-payments, said the central bank on Thursday.

Pakistan’s current account deficit jumped 81% month-on-month in August as a strong demand spurred imports, outpacing a recovery in exports.

The current account deficit surged to $1.476 billion in August from $814 million in the previous month. It had posted a surplus of $255 million in August 2020.

This was mainly due to higher trade deficit as imports continued to rise amid robust economic activity.

The changes in the prudential regulations 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.

Following changes have been made in this regard:--

• Maximum tenure of auto finance has been reduced from seven (7) to five (5) years;
• Maximum tenure of personal loan has been reduced from five (5) to four (4) years
• Maximum debt-burden ratio, allowed to a borrower, has been decreased from 50 to 40%;
• Overall auto financing limits availed by one person from all banks/DFIs, in aggregate, will not exceed Rs3,000,000, at any point in time; and
• Minimum down payment for auto financing has been increased from 15 percent to 30%.

“With the objective to protect lower to middle-income category purchases, these new regulations are not applicable to locally manufactured or assembled vehicles of up to 1,000 cc engine capacity,” the SBP said.

They are also not applicable to locally manufactured electric vehicles to promote use of clean energy.

It added that the financing of these two categories of vehicles will continue to be governed by the previous set of regulations.

The central bank clarified that regulatory instructions for Roshan Apni Car product of the banks or DFIs have also not been changed in order to encourage Roshan Digital Accounts and facilitate overseas Pakistan who have opened these accounts.