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Car financing gets difficult - to ease Import Bill
Prioritizing small cars, EVs & banning financing for Imported cars
SBP swings into action - tightens car financing to control Trade Deficit
Admitting the inability to see Current Account Deficit/Trade Deficit slipping faster than expected, govt has swung into actions. Notably, the following way:
- PkR depreciation to Rs 169
- SBP Monetary Policy hike by 25 bps
- 100% cash margin requirement on imports
- 5 day forecasts from Banks for imports
- Seek permission of imports worth $500,000 vs $1m
And now, prudential regulations are tweaked to "moderate" the demand;
- Debt Burden ratio reduced from 50% to 40% of income
- Max tenure reduced from 7 years to 5 years
- Minimum down-payment increased from 15% to 30%
- Limit on Auto Financing at Rs 3m
- Personal Financing reduced from 5 years to 4 years
- New/Used imported cars are barred from Auto financing
The above limits are not applicable to:
- Cars below 1000c
- Roshan Apni Car
- Local assembled EVs
With these steps, policy makers have taken a pro-active approach to moderate demand, taper the import growth & bring investor confidence back over next 2-3 months. However, more would be needed to impose duties on other luxury imported items which should be deterred for use yet used for tax generation.
In the short turn, demand for luxury vehicle Rs 4-40m will reduce for sure. More importantly, demand for imported cars would fall substantially as they are barred from financing altogether.
In the medium term, it's good for local players (who would cry foul after this demand denting measure) but would not have to compete with imported vehicles. It would in essence give them a reason to increase prices (because demand waned locally but increased due to import substitution).
That said, the car assemblers would also feel not threatened by imports nowadays. This must not deter introduction of new cars, safety measures & competition to improve quality at an affordable rate.
Pak Suzuki is relatively safe despite these measures. While Honda, Indus Motors, Kia & Hyundai would see demand wane. Nonetheless, they had already stopped booking (either because of chip shortage or new booking entails paying penalty for late delivery). Their order books are already filled for next 2-3 months and the "on-money" is as high as ~10-12% of the selling price. That shows demand grew much faster and supply couldn't catch up.
In conclusion, import growth would moderate in next few months to give confidence back to the market. Govt is shielding small car, EVs & RDA investors. Auto policy is around the corner that would prompt more local investment given that imported cars can not be financing. Plus, the SUVs & luxury sedan owners wouldn't be able to financing their $50k to $150k cars. That's good.