Consumer financing: SBP revises PRs to moderate import, demand growth

KARACHI: The State Bank of Pakistan (SBP) Thursday announced revision in Prudential Regulations (PRs) for consumer financing to moderate import and demand growth. As per revised regulations, the maximum tenure of the auto finance facility is reduced from seven (7) years to five (5) years. In addition, new as well as used imported vehicles will not be eligible for auto financing from banks/DFIs.

According to the SBP, this targeted step will help to moderate demand growth in the economy, leading to slower import growth and thus supporting the balance-of-payments. 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.

As per amendments, maximum tenure of auto finance has been reduced from seven (7) to five (5) years and the maximum tenure of personal financing, except the financing extended for educational purpose as prescribed in the regulation, is decreased from five (5) years to four (4) years.

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Maximum debt-burden ratio, allowed to a borrower, has been decreased from 50 to 40 percent and 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. However, the financing limit of borrowers whose approved limit already exceeds Rs3,000,000 may be amortized as per existing terms and the same shall not be further increased. Minimum down payment for auto financing has been increased from 15 percent to 30 percent.

With the objective to protect lower to middle income category purchases, 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. The financing of these two categories of vehicles will continue to be governed by previous set of regulations. Further, in order to encourage Roshan Digital Accounts and facilitate overseas Pakistanis who have opened these accounts, regulatory instructions for Roshan Apni Car product of the banks or DFIs have also not been changed.

According to SBP, these amendments in Prudential Regulations for Consumer Financing will be applicable, with immediate effect, on new financing facilities.

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