SBP restrict Car financing to 5 years, eliminate Imported cars

September 24, 2021

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State Bank of Pakistan revises Consumer Financing Prudential Regulations to curtail Cars import and reduce Financing for High End Cars. In this regard, SBP issued BPRF Circular Letter no. 29 of 2021 (link).

The State Bank of Pakistan felt that excessive lending is taking place in Auto segment and need to be moderated. In this regard, SBP published revised Prudential regulations for Consumer Financing, limiting the maximum tenor of car financing to 5 years from previous 7 Years.

Furthermore, minimum down payment has been increased from 15% to 30% of the value of the car, while total financing limit for Auto Loans have been caped to Rs. 3,000,000 availed by one person from Banking Sector.

SBP has also stipulated that Debt-Burden Ratio of the consumers should be maximum 40% instead of previous 50%.

Complete ban on Financing against Imported vehicles (Used or New) has been placed by State Bank of Pakistan.

These regulations would be applicable on locally assembled/manufactured vehicles of having capacity of more than 1000cc.
Though, these new regulations will not be applicable on 1) financing for locally assembled/manufactured vehicles of up-to 1000cc engine capacity 2) Car financing products of Roshan Digital Accounts and 3) locally assembled/manufactured Electric Vehicles.

As per SBP, Car Financing in the country had reached its all time high level of Rs326bn at the end of August-2021.

While Pakistan has started witnessing excessive Current Account Deficit since June-2021. The Changes in the Consumer Prudential Regulations have been aimed to reduce consumption of Luxury Cars in the economy, while providing support to small cars manufactureres.