Outstanding car financing in Pakistan continued its upward trajectory for the 22nd consecutive month, climbing to Rs407 billion in September from Rs393.3 billion recorded in August, according to the latest figures released by the State Bank of Pakistan (SBP).
The continued expansion in the auto financing portfolio came despite a visible slowdown in the physical sale of vehicles during the same month. Automobile assemblers observed a 12 per cent year-on-year contraction and a 3 per cent month-on-month decrease in the collective sales of passenger cars, sport utility vehicles (SUVs), pickups, and vans, taking aggregate volumes down to 15,104 units in September.
Policy Uncertainty and Taxation Fluctuations
The sluggish sales performance in September was largely attributed to prolonged uncertainties surrounding the delay in introducing the country’s new automotive policy. Market sentiment was further dampened by confusion regarding the applicable general sales tax (GST) on hybrid electric vehicles.
The taxation issue was eventually settled when the GST on hybrid vehicles with engine displacements of up to 2,000cc was fixed at 18 per cent, marking a reduction from the previously proposed 25 per cent benchmark.
Quarterly Upturn vs Monthly Dip
Despite the dip observed in the single-month figures for September, the sector demonstrated resilience across the broader initial quarter. Cumulative auto sales surged by 19 per cent during the first quarter of the fiscal year (1QFY27), reaching a total of 50,480 units.
Industry experts observe that financing patterns often reflect broader economic expectations and lagged disbursements, allowing outstanding credit balances to climb even during temporary volume contractions at dealerships.
Financing Outlook and Monetary Pressures
Mohammed Sohail, Chief Executive of Topline Securities, noted that while auto financing is poised to maintain an upward trajectory, the pace of growth is expected to decelerate. Sohail highlighted that persistent ambiguity over the upcoming auto policy and creeping borrowing costs are key constraining factors, noting that the Karachi Interbank Offered Rate (KIBOR) has edged higher over the preceding weeks.
Because auto financing remains closely tied to prevailing benchmark interest rates, adjustments in monetary policy remain a decisive variable for consumer uptake. During its most recent Monetary Policy Committee (MPC) meeting convened on September 14, the central bank opted to maintain the benchmark policy rate unchanged at 11.5 per cent.
However, future policy tightening remains on the horizon according to institutional forecasts. A recent report by Topline Securities noted that prevailing uncertainties regarding global geopolitical tensions, their subsequent disruption to international energy supply chains, and mounting domestic inflation expectations driven by firm oil prices and food inflation could prompt an intervention. The brokerage noted that the State Bank of Pakistan may raise the policy rate by 50 basis points to cushion the economy against extended inflationary pressures and external shocks.
Conversely, sentiment within commercial lending circles remains positive regarding credit appetite. A commercial banker involved in auto financing portfolios indicated that car financing volumes are anticipated to improve further in the coming period.
