State Bank sets mandatory housing loan targets for banks

KARACHI: The central bank has made it mandatory for banks to bring housing and construction loans up to at least five percent of private sector credit by the end of the next year, it said on Wednesday, as the government wants to rev up ailing economy through boosting construction activities.

In Pakistan, bank financing for mortgages and housing construction in the country is less than one percent of GDP which is one of the lowest in the region, the State Bank of Pakistan (SBP) said in a statement.

“Banks have remained reluctant over the years to extend mortgage financing for various reasons,” said the SBP. “Keeping in view the need for housing and its contribution to the economy, GoP (government of Pakistan) is aiming to increase the number of housing units manifold in the coming years and has recently announced several measures including commitment to remove hurdles in mortgage and construction financing.”

The SBP said it decided to set a mandatory target for banks to extend mortgage loans and financing for developers and builders to promote housing and construction of buildings activities in the country, as envisaged by the government.

The State Bank said a huge shortfall of housing units has accumulated over the years in the country due to significant shortages in meeting the annual additional demand of housing facilities by its citizens.

“Filling this gap is important to improve quality of living conditions for common people and construction of housing with linkages to dozens of allied industries offers substantial potential for boosting economic activities in the country,” it said. “This, however, requires considerable amount of financing to meet the investment needs of this sector.”

The SBP is also taking several measures in consultation with key stakeholders to enhance financing to the housing and construction of building activities. A high-level steering committee, under the chairmanship of SBP Governor and with representation from Naya Pakistan Housing Development Authority Chairman, several bank presidents and other stakeholders, is meeting every week to resolve issues and follow up on decisions to promote mortgage and construction financing. The steering committee has five sub-committees dedicated for various work streams with multiple operational level groups working at a fast pace.

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

SBP believes that several measures on the part of government will support bank financing for housing and construction related sectors.

These include passage of an efficient foreclosure law and its effective implementation, automation and computerization of land and property records for facilitation of clean title for bank lending and reduction in time taken in registration of title and creation/perfection of mortgages, creation of a Real Estate Regulatory Authority to address bank concerns of ensuring adequate standards of developers and builders, and reduction in transaction cost related to property transfers.