KARACHI: In a major move to boost house financing, the State Bank of Pakistan (SBP) on Wednesday increased the limit of banks’ exposure to housing and construction to 25 per cent from 15pc of their aggregate advances and investments.

On July 15, 2020 banks and DFIs were advised to achieve mandatory financing targets for housing and construction of buildings (residential and non-residential) equivalent to at least 5 per cent of their domestic private sector advances by Dec 31.

In order to increase funding for housing and construction through capital markets and microfinance banks (MFBs), the SBP decided to allow counting exposures of banks and DFIs towards achievement of their housing and construction finance mandatory targets.

The banks were allowed direct financing or investments in bonds, TFCs and sukuk issued by Real Estate Investment Trusts (REITs) management companies.

Banks were told to make investments in units or shares issued by REITs subject to compliance with all other applicable regulations.

They were allowed to invest in sukuk or bonds issued by Pakistan Mortgage Refinance Company (PMRC). However, investment in sukuk or bonds and amount of refinancing availed from PMRC will be netted off towards counting the mandatory target.

Financing to microfinance banks (MFBs) for extending housing finance to eligible borrowers to the extent of actual disbursements by MFBs. Banks extending financing to MFBs for housing finance will have to report such transactions to SBP separately.

The central bank said the above exposures will be considered on aggregate basis up to a maximum of 15pc of mandatory targets for housing and construction finance of a bank or DFI on a given date.

However, the new circular issued on Wednesday increased the exposure limit to 25pc.

“The exposure limit on eligible investments and financing has been increased to 25pc of mandatory targets for housing and construction finance from 15pc of the same,” said the circular.

The government and the SBP have been striving to boost the housing and construction industry but the banks are reluctant to extend housing loans.

On July 6, the SBP decided to impose penalty on banks if they fail to meet the mandatory targets for number of houses and disbursement.

“It has been decided that penalty will be imposed on banks falling short of their targets with effect from July 31 on both targets of number of housing units and amount of disbursements,” said the SBP.

The government’s prime agenda was to provide 10 million jobs and five million low-cost housing units but after three years there is no visible achievement in this direction.

Published in Dawn, December 2nd, 2021