SBP tightens consumer credit rules to limit auto loans

Cars parked in a showroom. File photo

KARACHI: The State Bank of Pakistan (SBP) on Thursday tightened consumer loan rules to curb rapid loan growth, mainly in the auto sector.

“The SBP has revised the Prudential Regulation (PRS) for consumer finance and this targeted measure will help moderate demand growth in the economy, leading to slower import growth and thus supporting the balance of payments” , the bank said in a statement.

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

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

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

The SBP said the changes to the prudential regulations effectively prohibit the financing of imported vehicles and tighten the regulatory requirements for financing domestically manufactured/assembled vehicles with an engine capacity greater than 1,000cc and other financing facilities. consumer credit such as personal loans and credit cards.

Under the new regulations, the maximum term for car financing has been reduced from seven years to five years.

Similarly, the maximum duration of the personal loan has been reduced from five to four years.

The maximum debt ratio allowed for a borrower has been reduced from 50% to 40%.

Aggregate car finance limits used by a person from all banks/DFIs, in aggregate, will not exceed Rs 3,000,000, at any time; and the minimum down payment for car financing has been increased from 15% to 30%.

“With the objective of protecting purchases by low-to-middle-income categories, these new regulations do not apply to locally manufactured or assembled vehicles with an engine capacity of up to 1,000 cc,” SBP said.

They also do not apply to electric vehicles manufactured locally to promote the use of clean energy.

The financing of these two categories of vehicles will continue to be governed by the previous regulations.

Passenger car sales jumped 81% in August, recovering from the slump seen a year ago when coronavirus shutdowns and the economic downturn weighed on sales.

The central bank has declared Roshan Digital Accounts and facilitates Pakistanis abroad who have opened these accounts, the regulatory instructions for the Roshan Apni Car product from banks or DFIs have also not been changed.