SBP lays out mandatory housing loan targets for banks


KARACHI: The State Bank of Pakistan said on Wednesday that it is mandatory for banks to ensure that housing and construction loans are maintained at least 5% of the private sector credit by the year’s end.

The statement came in the backdrop of the government’s measures and initiatives to revive the ailing economy, supported by the construction sector.

According to the SBP, bank financing for mortgage and housing constitutes less than 1% of the Gross Domestic Product (GDP) in Pakistan– being the lowest in South Asia.

“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 a commitment to remove hurdles in mortgage and construction financing.”

The central bank said it has decided to set a target for banks to extend mortgage loans and financings for developers or builders to support construction activities in Pakistan.

Due to the annual rise in demand for housing facilities and failure to meet these expectations, the bank said that ‘a huge shortfall’ of housing units has developed over time.

“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 a considerable amount of financing to meet the investment needs of this sector.”

To enhance the pace of building activities, the central bank said it is taking measures in consultation with key stakeholders to increase financing for construction activities.

Under SBP Governor and Naya Pakistan Housing Development Authority chairman, several bank presidents and other stakeholders, a high-level steering committee has been formed, which meets every week to resolve and follow up on financing matters.

It has five sub-committees for different sections with multiple operational level groups.

The SBP, in its instructions to banks, has asked them to boost their performance and capacity to meet these targets. They have been asked to present an action plan to the central bank within 15 days, in which they outline quarterly targets, development of products, media campaigns, development of technology infrastructure, and capacity building of staff, amongst other things.

Banks have also been directed to report data regarding approval and disbursements against the targets on monthly basis, starting from September 2020.

The SBP said it hopes that the government measures will lend support to bank financing in the construction sector.

The measures should include an efficient law and its implementation, automation, and computerization of land and property records and reduction in time for registration and creation of the mortgage.

The government should also create a Real Estate Regulatory Authority to address the concerns of banks regarding developers and builders and also attempt to reduce the cost of transactions in property transfers.

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