"Comparative study of auto leasing by selected banks of Pakistan"

Abstract

Bank Leasing is particularly car Leasing is picking up in Pakistan. Currently almost all banks and major car manufactures participate in this business. However, instead of increasing competition still effective interest rate JRR differs significantly. There are so many factors that affect effective interest rate which a common man can hardly understand and thus become a victim of discriminated rate. The objective of this research is to highlight all factors which affect IRR and give an impartial comparison of standard/effective IRR of selected banks so that customers can see the true picture. For this purpose data on equity participation of each bank, insurance premium, monthly repayment and other charges like application fee have been collected. Then total down payment monthly installments have been worked out in order to calculate standard/effective IRR. For the study seven main banks have been chosen for analysis, these banks are Muslim Commercial bank, Citibank, askari bank, Union bank, Bank Alflah, Standard Chartered & Habib bank. Also for making study easy to meet its objectives some assumptions are taken like a standard vehicle Honda city exist- with list price of Rs 7, 83,500 is supposed here for calculating a leasing package for selected banks. IV Findings of this exercise are quite interesting. Banks usually surprisingly effective IRR are quite different from announced markup rate of banks and are also quite different across the banks. For example, MCB announced IRR is 8. 5% but effective IRR is 18% and similarly Citibank announced IRR 11 % but effective IRR is 26% and similarly Bank Alflah announced IRR 9.5% but effective IRR is 17% and similarly Askari- Bank announced IRR 9% but effective IRR is 24%.