Banks are instructed to increase home loans to 7% of private advances until December

KARACHI: The State Bank of Pakistan on Friday asked banks to allocate 7% of their private sector lending to finance housing and construction until December 2022.

“With a view to further promoting housing and construction finance, banks are advised to increase their housing and building construction finance (residential and non-residential) to at least 7% of their respective sector advances national private sector by December 2022,” the SBP said in a circular.

Previously, banks were mandated to increase their housing and construction finance portfolios to at least 5% of their advances from the domestic private sector until December 2021.

Banks’ outstanding credit to the housing and construction sector grew by a record Rs 163 billion or 85% in 2021, helped by central bank rules to encourage mortgage lending and its incentives and penalties for lenders for meeting or failing to meet housing finance targets.

Banks disbursed 355 billion rupees in housing loans in 2021, up from 192 billion rupees the previous year, according to SBP figures. Disbursement of low-cost housing loans under the government subsidy scheme, also known as Mera Pakistan Mera Ghar (MPMG), reached Rs 38 billion last year.

In December, banks provided loans of 9.3 billion rupees to borrowers, the highest monthly disbursement since January 2021. Habib Bank, Meezan Bank and Bank Al Habib were the top three contributors. Banks have also made significant progress in providing funding under the MPMG scheme, introduced in 2020, the SBP said in a statement issued on January 6.

Funding under the MPMG picked up momentum in 2021 with funding approvals from banks rising from near zero to Rs 117 billion in 2021. Banks received funding requests of Rs 276 billion from potential customers.

Bank Alfalah became the leading bank with the highest disbursement of 3.3 billion rupees, followed by nine banks with disbursements of over 2 billion rupees each. These include Meezan Bank, BankIslami, National Bank, Standard Chartered Bank, HBFCL, United Bank, MCB Bank, Bank of Punjab and Habib Bank. Housing and construction finance, especially under the MPMG, has witnessed impressive growth thanks to numerous enabling regulatory environments introduced after extensive stakeholder consultation, the SBP noted.

The SBP has taken a number of steps to create an enabling regulatory environment for banks to increase the flow of finance to the housing sector. Key initiatives include allowing third party guarantees to be accepted during the construction period, waiver of debt ratio in case of informal income and introduction of standard facility offer letters by banks. The SBP also advised banks to develop and deploy income estimation models for borrowers with informal sources of income.

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