Banks suffer heavy losses on auto loans
Karachi: The size of consumer finance market depends on the level of prosperity and consumers’ capacity to repay debts. Similarly in auto financing, it is important to evaluate consumers’ capacity to repay but many banks have ignored rule which led to high default rates.
“Initially when auto finance product was introduced by many banks with ‘no documents required’, only NIC and two references were enough for the approval of auto financing,” said a banker. One of the sources disclosed that only Bank Al-Falah’s auto losses were around Rs350 million and that of UBL’s auto losses are even higher. Such huge losses compelled banks to critically review their products.
In order to minimise the risk of defaults, banks have become more cautious and they have restricted the idea of ‘no documents’. It was very easy to get an auto financing with least documentation but at present complete evaluation and proper assessment of the customers’ ability to repay is considered before loan is sanctioned. It has become mandatory to provide bank statements, pay slips, CNIC, references and the most important is the Credit Information Bureau Report which contains the details of borrowers’ all previous loans record and capacity to repay.
Insurance companies have made it mandatory for the customers to avail car tracking system at the time of auto financing from banks to curtail their theft losses. Many conventional banks have stopped or either slowed down auto finance because of the high rate of defaults. Analysts believe that recovery of auto loans was one of the major concerns for banks. Auto finance loans have been stopped by the banks which are one of the reasons of decline in car sales. Political turmoil in 2007 was another reason which also affected car sales.
Bank Al-Falah has stopped auto financing last year, Standard Chartered Bank, Faysal Bank and some other banks either they have stopped or slow downed and reviewing this side of the business. Banks have shifted the auto loans dealings from branches to the head offices to investigate and accurately evaluate the loan repay capacity of the customer in order to curtail any further defaulters.
Analysts pointed out that previously banks branches had the privilege to directly deal and evaluate the eligibility criteria of the customer which was done very leniently and consequently produced disastrous results. Standard Chartered Bank is one such bank which had currently stopped new bookings of auto loans and dealing with their previous customers.
It is learnt that Standard Chartered has restricted its dealings to only its existing customers. The bank is reviewing the business critically and planning to come up with some new strategic planning to overcome the previous drawbacks to revive the product in three to four months with recovery of pervious auto loans.
jo boya tha woo kat rahay hai.... sood per gariya abb banks or customers dono k liay wabal--e--jaan ban gai hai .......
sood per yakeen na karna yaroo pachtao gay sari life..........
