Banks will no longer offer loans to buy imported vehicles

KARACHI: With an aim to slow down import growth and put the brakes on the ballooning trade and current deficits, the State Bank of Pakistan (SBP) has revised prudential regulations (PRS) for consumer financing, reducing the loan limit and period for imported vehicles.

“The changes in the PRs 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,” the central bank said in a statement.

“This targeted step will help to moderate demand growth in the economy, leading to slower import growth and thus supporting the balance-of-payments.”

Following are the PRS changes the SBP has made:

• Maximum tenure of auto finance has been reduced from seven to five years
• Maximum tenure of personal loan has been reduced from five to four years
• Maximum debt-burden ratio, allowed to a borrower, has been decreased from 50 to 40
  percent
• 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
• Minimum down payment for auto financing has been increased from 15 percent to 30
  per cent.

In order to protect lower to middle income category purchases, SBP said these new regulations are not applicable to locally manufactured or assembled vehicles of up to 1,000 cc engine capacity.

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

“The financing of these two categories of vehicles will continue to be governed by previous set of regulations,” SBP said.