KARACHI: Higher interest rates have badly damaged consumer financing during the first half of this fiscal year as its key driver car purchasing remained dormant.

The consumer financing increased by just Rs23 million which pushed the total amount to Rs555.8m in December 2019, from Rs532.7m in June same year.

The State Bank of Pakistan`s latest report showed that car financing has posted no sign of life as it failed to move from June 2019 levels.

Elevated interest rates have damaged not only the domestic investment on large scale but also dealt a blow to consumer financing; a reflection of an economic slowdown.

The report shows the financing of cars and other vehicles stood at Rs215.4m as of June 2019, and drif ted lower by a negligible amount to Rs215.3m in December.

It comes off as little surprise as the auto sector has been facing toughtime due to a host of reasons like price hike, steep devaluation of local currency and sudden drop in demand.

However, financing for car purchases has come down to halt during the first half of this fiscal year. Banks have been using their maximum liquidity to purchase government bonds and other papers but they still have surplus to fund the private sector like car financing.

Bankers said the high interest rate further increases car prices, which are already f acing hikes due to multiple reasons. According to them, buyers are not ready to pay the interest which could be in the range of 17-22 per cent depending upon the risk involved with the individual customer.

An official at an Islamic Bank who deals with car financing said his job was at stake since the segment`s financing has come down to almost zero level. He said the car manufactures have also dropped their production due to poor demand in the market.

The report shows that financing for credit cards has increased during thefirst half as it reached Rs49.3m in December 2019, from Rs44.3m in June same year; posting a rise of Rs5m.

Credit card penetration has increased over the last three years but it could not find the same space it has in other developing markets; the total amount is meagre compared to the country`s economic size.

Bankers said only few institutions take the risk to issue credit cards while others believe that cost of money is another hindrance for the expansion ofthese cardsin the country.

Under the head of consumer financing, the credit for house buildings marginally rose during JulyDecember FY20 as it inched up by just Rs6 million to Rs89m.

Despite very high demand for houses in the country, banks find it difficult to lend to sector mainly because of its long-term financing requirement and fear of defaults.

The data show that personal loans have increased by Rs12m to Rs194m during the period under review.