KARACHI: Credit to the housing and construction sector increased by record Rs163 billion or 85 percent in 2021, mainly driven by the central bank’s rules to encourage mortgages and incentives and penalties for lenders with respect to achieving or failing housing finance targets.
Banks disbursed Rs355 billion housing loans in 2021, compared with Rs192 billion in the previous year, the State Bank of Pakistan said in a statement on Thursday.
Disbursement of low-cost housing loans under the Government Markup Subsidy scheme, also known as Mera Pakistan Mera Ghar (MPMG), reached Rs38 billion last year. In December, banks extended Rs9.3 billion loans to the borrowers; highest monthly disbursement since January 2021.
Analysts said tighter monetary conditions usually affect mortgages as the SBP has jacked up interest rates by 275 basis points in three moves since September. Currently, the policy rate hovers at 9.75 percent.
However, the government’s mark-up subsidy scheme looks to remain protected from an upward move in interest rates as the government is providing subsidy to the mortgage clients for the first 10 years.
Habib Bank, Meezan Bank and Bank Al Habib were the top three contributors, said the SBP.
Banks also made significant progress in the provision of financing under MPMG scheme, introduced in 2020, it added.
“Financing under MPMG picked up momentum in 2021 as approvals for financing by banks grew from near zero to Rs117 billion in 2021. The banks have received requests of financing of Rs276 billion from potential customers, which indicates that approvals and disbursements will keep growing in coming months.”
Bank Alfalah emerged as the leading bank with highest disbursement of Rs3.3 billion followed by nine banks with disbursements of over Rs2 billion each. These include Meezan Bank, Bank Islami, National Bank, Standard Chartered Bank, HBFCL, United Bank, MCB Bank, Bank of Punjab and Habib Bank, said the statement.
Financing for housing and construction and particularly under MPMG witnessed impressive growth on the back of many enabling regulatory environments introduced after extensive consultation with stakeholders, the SBP noted.
Further, the SBP said it advised the banks to increase their housing and construction finance portfolios to at least 5 percent of their domestic private sector advances till December 2021, introducing a set of incentives and penalties to ensure compliance.
The SBP has taken a number of steps to create an enabling regulatory environment for banks to increase flow of financing to the housing sector. Key initiatives include allowing acceptance of third party guarantees during the construction period, waiver of debt burden ratio (DBR) in case of informal income and the introduction of standard facility offer letters by the banks.
The SBP has also advised banks to develop and deploy income estimation models for borrowers with informal sources of income.
In addition to gauge readiness, knowledge and appropriate behaviour of banking staff towards MPMG customers, the SBP conducts regular mystery shopping surveys of bank branches all over the country. In line with initiatives of the SBP, banks have standardised and simplified loan application forms.