A steady rise in the purchasing power of the middle class and affordable automobile loans are contributing to the growth of car sales in Bangladesh, according to bankers and industry players.
The auto loan portfolio grew 22.36 percent to Tk 1,413 crore in 2016 compared to a year ago, shows an analysis of Mutual Trust Bank. Also, the number of auto loan accounts saw 17.52 percent growth to 14,702 last year.
Declining lending rates for the past two years have been pushing up demand for auto loans, according to bankers.
Earlier a borrower had to pay 15-16 percent interest for taking an auto loan, but now the rate has come down to as low as 10 percent, they said.
Demand for automobiles has substantially increased with the steady rise in purchasing power of middle class people, said MA Halim Chowdhury, managing director of Pubali Bank.
Consumer financing is one of the focused businesses of Pubali Bank and a large portion of such financing goes to the automobile sector.
The bank disbursed Tk 56 crore in auto loans in June.
Chowdhury said the loan recovery rate in the auto loan segment was also better than other areas. The bank recovered Tk 49 crore from auto loans last month.
He said private sector employees, mostly of the banking sector, played a vital role in raising the demand for vehicles. Mid level employees of banks are entitled to cars, he said.
According to Bangladesh Reconditioned Vehicles Importers and Dealers Association (Barvida), the total number of registered private cars in the country was 3.5 lakh as of March this year.
The size of the car market now stands between Tk 4,000 crore and Tk 5,000 crore with a growth rate of 15-20 percent annually. Barvida data shows 15,000 private cars are imported on an average per year.
This growth was driven by the growing middle class. Boston Consulting Group in a research showed that two million Bangladeshis join the ranks of middle and affluent class every year.
Per capita income rose to $1,602 in the last fiscal year, up from less than $500 a decade ago, according to the Bangladesh Bureau of Statistics (BBS).
Growing urbanites and middle class have been creating new demand for auto loans.
Auto loan portfolio of over three dozen private commercial banks grew at an average of 44.25 percent in the last three years, according to Bangladesh Bank data.
Mohammed Nurul Amin, managing director of Meghna Bank, also attributed the growth to falling lending rates.
Banks are currently lending auto loan at 11 to 12 percent while the rate was above 16 percent two years ago, he said.
Currently, the average interest rate of other consumer loans is 13 percent, according to the central bank.
Moreover, the cars are mortgaged for which banks are more inclined to giving out loans.
Habibullah Don, president of Barvida, said the demand for cars has been growing due to a lack of quality public transports.
“Middle class people are compelled to buy cars as they cannot use the shabby public vehicles,” said Don.
Bangladesh Bank's ceiling on the auto loan at 50 percent of the total value is a barrier to the growth of car sales, he said. Five years ago, up to 70 percent of the value could be availed from loans.
Toyota leads the reconditioned private car market with 88.5 percent share, according to the Mutual Trust Bank report. The second, third and fourth positions are occupied by three other Japanese automotive manufactures -- Nissan, Honda and Mitsubishi.
Toyota is the highest selling brand with two price groups in the market. Axio Sedan and Axio Fielder are in lower price categories selling between Tk 17.5 lakh and Tk 19.5 lakh.
Allion and Premio are the higher price categories selling between Tk 24 lakh and 28 lakh, according to the report.