KARACHI:

Auto financing continued its upward trajectory, hitting a 25-month high of Rs286 billion in July 2025, according to the latest data released by the State Bank of Pakistan (SBP) and compiled by Topline Research.

The July 2025 figures mark a 25% year-on-year (YoY) increase and a 3% month-on-month (MoM) rise, highlighting improving consumer appetite for car purchases amid an easing interest rate environment. This is the highest level since June 2023, when financing stood at Rs285 billion.

Despite the rebound, auto financing remains 22% lower than the all-time peak of Rs368 billion recorded in June 2022, when aggressive consumer borrowing coincided with strong vehicle demand. The subsequent decline was triggered by soaring borrowing costs, import restrictions on raw materials and automotive parts, and a broader economic slowdown that severely dented car sales and leasing activity.

Analysts believe the recent turnaround reflects recovering consumer confidence, driven by declining interest rates following the SBP’s monetary easing cycle, as well as stabilisation in the exchange rate and gradual improvement in supply chains. Auto financing is finally showing signs of recovery after two years of contraction. The consistent monthly growth suggests that demand is returning, and this momentum is likely to continue if monetary easing persists.

“The recovery reflects improving consumer demand amid falling interest rates and is expected to further lift auto sector sentiment, with stronger sales and earnings outlook for listed companies,” said market experts at Topline Research. The revival in auto financing is expected to boost sentiment in the automobile sector, which has faced one of its toughest downturns in recent history. Listed auto assemblers and allied sectors, such as parts manufacturers, may benefit through improved sales volumes and a stronger earnings outlook in the coming quarters.

Industry observers caution, however, that sustained growth will depend on further cuts in financing rates, stable macroeconomic conditions, and consumer purchasing power. With auto financing back on the rise, the sector may be entering a new growth cycle, giving much-needed support to Pakistan’s struggling economy.

Commenting on the recent rise in auto financing, auto industry expert Mashood Ali Khan said that while the sector is seeing renewed momentum, several economic challenges remain.

He noted that car financing had touched Rs360 billion in 2022, and to return to that level, Pakistan would require single-digit interest rates, compared with the current 11%. “If interest rates fall further, automobile sales will definitely get a boost. However, the industry faces very difficult challenges,” he said. Khan highlighted that despite some improvement, Pakistan’s foreign exchange reserves have not grown significantly, while budgetary measures tied to the International Monetary Fund (IMF) programme are gradually increasing import pressures. He warned that although inflation has been contained, a rapid cut in interest rates could reignite price pressures in the auto sector.

“The rupee has remained stable around 280, which is positive, but sustaining this stability will be difficult if inflation rises again,” he added. Another key obstacle, according to him, is that purchasing power has not improved sufficiently, leaving a gap between demand potential and actual consumer affordability.

He also stressed the need for policy stability to restore the confidence of industrialists and investors. “Sometimes imports of used cars are opened, sometimes restricted. This inconsistency shakes business trust. Over the past two and a half years, many industrialists and skilled youth have left the country,” he remarked.

Khan emphasised that to counter the challenges from lower interest rates, Pakistan must strengthen exports, an area that requires long-term planning, incentives, and facilitation in special economic zones. He also pointed to the concerns raised by chambers of commerce in recent months over unfriendly regulations, underlining the importance of supportive policies for SMEs and industrial protection.

“The direction is right, but stability and continuity in policies are crucial,” Khan concluded.