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Outstanding car financing in Pakistan rose for the 22nd consecutive month, reaching Rs407 billion in September compared with Rs393.3 billion in August, according to data released by the State Bank of Pakistan (SBP).
The increase came despite a slowdown in vehicle sales. Assemblers sold 15,104 cars, SUVs, pickups and vans in September, marking a 12% year-on-year and 3% month-on-month decline.
Uncertainty surrounding the delayed auto policy and confusion over the general sales tax (GST) on hybrid vehicles contributed to market concerns. Authorities later settled the GST rate at 18% for hybrid vehicles with engine capacities of up to 2,000cc, down from 25%.
However, the overall market showed growth during the first quarter of the current fiscal year. Cumulative vehicle sales rose 19% to 50,480 units in the July-September period of FY2027.
Topline Securities Chief Executive Mohammed Sohail expects car financing to continue growing, although at a slower pace.
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He cited uncertainty over the new auto policy and rising borrowing costs. The Karachi Interbank Offered Rate (KIBOR), a key benchmark for lending rates, has also edged higher in recent weeks.
Auto financing remains sensitive to interest rates because borrowing costs affect consumers’ ability to purchase vehicles through instalments.
At its monetary policy meeting on September 14, the SBP kept the policy rate unchanged at 11.5%.
However, Topline Securities warned that inflationary pressures could prompt a change in monetary policy.
In its recent report, the brokerage highlighted global geopolitical uncertainty, risks to energy supply chains and rising inflation expectations amid elevated oil and food prices.
“The State Bank may raise the policy rate by 50bps to help mitigate any prolonged inflationary and external shock,” the report said.
A rate increase could raise borrowing costs further and potentially slow demand for financed vehicles.
Despite these challenges, a banker involved in auto lending expects financing activity to improve from November.
The banker cited stronger consumer confidence, growing acceptance of Chinese-made vehicles, new model launches and the entry of additional brands into Pakistan’s automotive market.
These developments could encourage more consumers to consider vehicle purchases, including through bank financing.
However, the pace of recovery will depend on borrowing costs, consumer purchasing power and clarity over government policies affecting the automotive sector.
The coming months could see relatively stable vehicle sales, according to the report, amid a substantial increase in assemblers’ imports of semi-knocked-down and completely knocked-down kits.
These kits, commonly known as SKD and CKD kits, contain components used to assemble vehicles locally.
Higher imports may indicate that assemblers are preparing for continued production and expected demand. However, actual sales will also depend on economic conditions, vehicle prices and the availability of affordable financing.
For now, rising outstanding car loans point to continued demand for bank financing, even as monthly vehicle sales face pressure from policy uncertainty and higher borrowing costs.
