The easing in the interest rate is likely to compel bankers to reignite consumer financing, particularly car financing, analysts said. Pakistan central bank has slashed its policy rate by 350 basis points to 10.5 percent since July 2011, as inflationary trends subsided coupled with some positive developments on the external front, they said.
Recalling FY07, when the car industry posted highest sales of 193,000 units, they said that car financing was the major driver, contributing about 40 percent of car sales. "Therefore, cut in the policy rate holds the potential to once again rejuvenate car sales and compel us to re-rate our outlook for the sector," Zeeshan Afzal at Topline Securities said.
However, he said, the growth in sales might take time and the impact of car financing might be visible from FY13 onwards. "Therefore, where we maintain our FY13 car sales assumption at 150,000 units, we have revised upward our FY14 and FY15 sales projections by 10-15 percent."
To support economic recovery, SBP has slashed discount rate by 350bps since July 2011 on account of controlled inflation and certain positive developments on the external front. "Declining discount rates is likely to push bankers to shift to high margin consumer financing. The evidence of the same has started to emerge from recent media advertisements of car financing," he said. "Our discussions with industry sources reveal that some banks are financing cars at lower rates and we believe, the tendency will stimulate the depressed car industry and any further decline in discount rates holds the potential of spinning the wheels of depressed car industry," he added.
Comparing to peak 193,000 units in FY07, car sales (including Jeeps and LCVs) has declined to 179,000 units in FY12. "We expect car sales to settle at 140,000-150,000 units in FY13, a decline of 16 percent," he said. Negative tone in sales is evident in 30 percent decline in car sales in two months of FY13 due to termination of two models (Coure and Alto), higher CBU imports and ending taxi scheme.
"We believe that the leasing which is currently contributing around 10-15 percent in car sales will gradually improve to the levels we saw 5 years back given low interest rate scenario", he said. "Though we believe car sales will remain suppress in FY13, car financing would propel sales in FY14 and beyond", he said. "We expect FY13 sales to drop by 16 percent but show an improvement of 18-20 percent in FY14 and FY15 to 180,000 and 210,000 units respectively", he added.