Auto financing dominating in the banks' consumer portfolio, posted a hefty growth of some 96 percent during first quarter (July-Sep) of this fiscal year (FY18). According to State Bank of Pakistan (SBP) lower interest rate regime and aggressive marketing by banks sparked the consumer financing as banks disbursed some Rs 18.4 billion on account of consumer financing in the first quarter of current fiscal year.
While the increase in mortgages during July-September of FY18 was three times the increase observed last year, it was the hefty increase in auto finance that dominated banks' consumer portfolio. Increased availability of cheaper financing facilities contributed significantly to higher car sales in the country, the SBP revealed in its recent report. Auto financing rose to Rs 11.2 billion in the first quarter of FY18 compared to Rs 5.7 billion in the same period of last fiscal year (FY17), depicting an increase of 96 percent or Rs 5.5 billion.
Anecdotal evidence suggests that some customers are using bank-financed cars to sign up for ride-hailing service providers. Industry estimates suggest that the magnitude of car financing could have been even higher if not for delayed delivery of vehicles by local assemblers. Islamic financing products are particularly affected as these require physical possession of the vehicle at the time of disbursement. To address this concern, more aggressive banks are using their demand projections to pre-book cars in bulk with wholesale importers, the SBP said.
Moreover, some banks are providing financing for semi-commercial vehicles like Bolan and Ravi under various subsidized loan schemes announced by the government. The SBP said within banks, the Islamic segment kept on consolidating its share in outstanding auto financing loans in the quarter. Some Islamic banks are now more inclined towards diminishing Musharika as opposed to car Ijara, which used to be the more popular Islamic auto financing product.
This was primarily to avoid all the associated risks and cost including registration; maintenance; insurance premiums; etc. of retaining the ownership throughout the tenure of Ijara. In case of diminishing Musharika, since the ownership splits from the day one between the borrower and the bank, risks and rewards are also shared, it added. According to SBP's data house financing posted an increase of 250 percent or Rs 4.5 billion to Rs 6.3 billion end of the first quarter. Credit cards financing stood at Rs 1.6 billion up from Rs 1.5 billion.
However, during the period under review, personal loans portfolio witnessing massive decline. Consumer financing under personal loan fell to Rs 0.8 billion in July-September of FY18 down from Rs 11.4 billion in corresponding period of last fiscal year.