Car, house, credit cards business falls sharply

KARACHI: All segments of consumer financing, including car purchase loan, housing loan and credit cards business, witnessed a significant fall in the fiscal year ended June 2009, the State Bank reported in its data released a day earlier.

The impact of slow economic growth and rising risky assets of the banks which forced banks to adopt a cautious approach ultimately damaged various segments of consumer financing.

Consumer financing which grew rapidly just five years before and had a potential to get a large portion of the banks’ financing, got shocks as it started losing its charm for the banking sector, said an expert.

According to fresh data, consumer financing fell by Rs65 billion since June 08 to June 09. Till June 2009, the volume of consumer financing was Rs359 billion which has now arrived at Rs294 billion.

While banks were reluctant to loan the corporate and related sectors to avoid further growth in their already soaring bad debts, consumer financing also received a negative impact.

Though consumer financing earned them the highest price as interest rates are usually very high compared to the loans for corporate and other sectors, the biggest hit under the consumer financing was car loan which had boom just a couple of years ago. The State Bank reported net fall of Rs26 billion in the banks’ loans for car and other vehicles purchasing.

In June 2008, the net loan for car purchase was Rs104 billion which fell to just Rs78 billion in June 2009. The steep fall in car loans badly impacted upon growth of car manufacturing in the country. Though car manufacturers did not reduce prices, they sharply reduced production of vehicles.

This was unlike other developed countries where most of car manufactures substantially reduce prices to keep their plants alive. It happened after financial crisis in US, Europe, Japan and China. This was because most of banks suffered huge losses and a number of banks were closed down.

The fear of Pakistani banks also hit credit cards growth as cautious banks slowed down their efforts to spread the credit cards business.

The newly compiled data showed that instead of rising loan portfolio, credit card business losing ground in its initial stage in the country.

Until June 2008, the total volume of credit cards loan was Rs44 billion which fell to Rs35 billion, a fall of Rs9 billion in 12 months. This was apparently a loss to the banking sector as credit card earn highest profit for banks world over.

The rates on which loans are given through credit cards were in the range of 35 to 40 per cent per annum.

The loan for housing sector remained dismal as banks never made serious efforts to invest heavily in the housing sector which has enormous potential to grow. The government says the country’s housing shortfall is not less than five million and the shortfall is increasing each year as private sector is unable to grow at the required rate without help of banks.