KARACHI: Disbursement of low-cost housing loans jumped by 80 per cent in the first five months of the current fiscal year apparently due to an increasing burden of applications and a warning by the State Bank of Pakistan (SBP) to banks for meeting targets or face penalties.

According to SBP data, the disbursement increased by Rs23.5bn during the July-November period. Bankers said there were several reasons for a sudden increase in the disbursement of loans while the primary reason was the persistent threat of penalties from the government and the central bank.

The data showed that the disbursement for Mera Pakistan Mera Ghar Scheme (MPMG) was just Rs32 million at the end of December 2020.

The progress was extremely slow initially as it reached Rs5.223bn at the end of June 2021.

In view of the slow progress, the SBP and the government started pressurising banks by making it mandatory for them to allocate 5pc of their loans for housing and construction to achieve higher economic growth and create a large number of jobs.

Bankers attribute sharp increase to persistent threat of penalties from the government and the SBP

On July 15, 2020, the SBP fixed a mandatory target for banks to extend mortgage loans and financing for developers and builders while the banks will be required to increase their housing and construction of building loan portfolios to at least 5pc of their private sector credit by the end of December 2021.

The central bank also decided to impose penalties on banks falling short of their G-MSS targets with effect from July 31, 2021 — both the number of housing units and the disbursements.

The January-November data of calendar 2021 showed banks disbursed a total of Rs28.744bn against approved loans of Rs99.7bn.

However, the total loan demand reached Rs244.9bn by end of November following an upsurge in the applications.

In April, the SBP assigned monthly mandatory targets of the number of housing units and amount of disbursements (G-MSS targets government’s Mark-up Subsidy Scheme) to banks in proportion to share in total banking assets.

The central bank said that a baseline penalty will be charged on shortfall from cumulative targets till July 31, 2021 while a higher penalty will be charged on shortfall from targets of subsequent months.

The disbursement kept increasing each month of FY22 while the highest Rs6.5bn was in November. Earlier, Rs5.3bn was doled out in October, Rs5.4bn in September, Rs3.8bn in August, and Rs2.5bn in July.

Before the beginning of FY22, the Pakistan Banks’ Association (PBA), through a consultative process, developed and circulated among banks a baseline income estimation model.

The SBP believes that this estimation model is expected to ease difficulties being faced by the general public in availing the housing finance.

Published in Dawn, December 11th, 2021