On September 24th, 2021, the State Bank of Pakistan (SBP) revised the prudential regulations (PRS) to tackle rapid loan growth. A rise in imports has been observed, due to higher demands. This has led to an account deficit of 81% month-on-month last August.
The revisions in prudential regulations aim to balance the demand growth that will result in a slower import rise, thus stabilizing the “balance-of-payments.” The revisions prohibit the financing of imported vehicles while limiting it for locally manufactured vehicles with an engine capacity greater than 1000cc.
Limitations were also imposed on credit cards and personal loans. The new regulations focus mainly on the automobile sector. The SBP has also shortened the duration of auto finance from a maximum tenure of 7 years to 5 years.
In the same way, the maximum tenure has been shortened from 5 to 4 years for personal loans. On top of that, the overall limit of auto finance for a person from all banks/DFI has been set to PRK 3000000. The minimum down payment for auto finance has been set to 30% compared to 15% previously.
To promote local business growth and clean energy, locally manufactured vehicles with an engine capacity of up to 1000 cc and electric-powered cars are not subjected to these provisions. All these regulations have been placed considering the amount deficit increase of $1.476 Billion in August from $0.814 Billion in July. The deficit resulted in a surplus of $255 million in the month of August.
With the above-mentioned steps, the State Bank of Pakistan aims to stabilize the imbalance in imports and exports with the hopes to improve the economic status of the country.