KARACHI: Housing finance by banks increased by 16.2 per cent during FY17 but the number of borrowers declined indicating the rising finance costs in the country.

The State Bank’s latest report on housing finance by banks and development finance institutions (DFIs) showed that the total outstanding amount of housing finance has increased to Rs88.18 billion by June compared to Rs75.89bn in June last year.

Housing shortage has become a serious issue and a crisis like situation has developed in the sector, however, the financial institutions’ participation in the sector remains depressed. The government is willing to build five million houses to fill the shortage of around 10m housing units across the country.

However, the recent move by the government to reduce development funds clearly indicates that building such a large number of houses would not be possible in the current fiscal year.

The SBP data shows that Islamic banks were more aggressive than conventional banks in financing the housing sector despite the fact the Islamic banks are still a small part – about 13pc – of conventional banks.

The outstanding amount of Islamic Banks for housing finance till June reached Rs39.23bn compared to Rs31.73bn last year; a growth of 23pc. Islamic Banks have been banking on their attractive products to finance housing in the country.

The financing for housing sector by the conventional banks also noted an increase of 19pc to Rs34.56bn during the year but it remained below the total size of financing by the Islamic Banks. The financing by DFIs declined to Rs14.39bn from Rs15.12bn.

No data was available on outstanding finance of House Building Finance Company (HBFC) which is one the largest financer for housing in the country. The banks – particularly conventional banks – argue that since most of the deposits in the banks are kept for less than one year, their potential for long term financing is significantly low.

Despite a visible increase in volume of the overall housing finance, total number of borrowers on the other hand reduced by 5,533 to 62,062 till June.

However, the non-performing loans (NPL) ratio of banks and DFIs improved significantly as the dropping down to 12.74pc from 18.38pc last year. The NPL ratio for banks, however, declined to 8.47pc from 11.32pc.

The SBP report also noted that small group of people (6,251) borrowed highest amount of Rs60.51bn. At the same time, the largest number of people (44,638) borrowed smallest amount of Rs7.66bn during the period under review.

Published in Dawn, September 27th, 2018