SBP tasks banks to increase housing, construction financing

Banks have been asked to increase their housing and construction loan portfolios to at least 5pc of their private sector credit

KARACHI: In order to promote housing and construction activities in the country, the State Bank of Pakistan (SBP) has decided to set a mandatory target for banks so as to extend mortgage loans and financing for developers and builders.

“The banks will be required to increase their housing and construction loan portfolios to at least 5pc of their private sector credit by the end of December 2021,” said a statement issued on Wednesday.

According to the central bank, due to significant shortages in meeting the annual additional demand for housing facilities, a huge shortfall of housing units had accumulated over the years in the country. “Filling this gap is important to improve the quality of living conditions of common people, and the construction of housing, with linkages to dozens of allied industries, offers a substantial potential to boost economic activities in the country.”

This, however, requires a considerable amount of financing. 

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In Pakistan, bank financing for mortgages and housing construction is less than one per cent of GDP, which is one of the lowest in the region. Banks have remained reluctant over the years to extend mortgage financing for various reasons. Keeping in view the need for housing and its contribution to the economy, the government is aiming to increase the number of housing units manifold in the coming years and has recently announced several measures including commitment to removing hurdles in mortgage and construction financing.

To play its due role in enhancing financing to the housing and construction of building activities, SBP is also taking several measures in consultation with key stakeholders.

A high-level steering committee, under the chairmanship of the SBP governor and with representation from Naya Pakistan Housing Development Authority, banks and other stakeholders, is meeting every week to resolve issues and follow up on decisions to promote mortgage and construction financing, especially for NAPHDA projects. The steering committee has five sub-committees dedicated for various work streams with multiple operational level groups working at a fast pace.

In today’s announcement, while issuing mandatory targets, banks have been asked to gear up appropriately by developing their infrastructure and capacity to meet these targets. SBP has instructed banks to present a concrete action plan to SBP, within 15 working days, containing quarterly targets, development of products, media campaigns, development of technology infrastructure, and capacity building of staff, among other areas. 

Banks have also been directed to report data of approvals and disbursements against the targets on a monthly basis starting from September 2020. 

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