Pakistan’s central bank says all private banks must increase housing, construction financing to at least 5 percent of private sector credit
The State Bank of Pakistan on Wednesday announced it was setting a mandatory target for private banks to increase their housing and construction sector loans to at least 5 percent of their private sector credit by the end of December 2021.
In a statement, the central bank said this decision intended to support the Government of Pakistan’s bid to promote the country’s housing sector. It said citizens were facing “significant shortages” in meeting annual demand for new housing, adding that filling this gap was essential to improving the living conditions of the common man. “Construction of housing with linkages to dozens of allied industries offers substantial potential for boosting economic activities in this country,” he added.
Noting that bank financing for mortgage and housing constitutes less than 1 percent of Pakistan’s Gross Domestic Product—the lowest in South Asia—the State Bank said banks had been reluctant to extend mortgage financing in the past for various reasons. “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,” it said.
The central bank said that it was taking several measures to enhance financing for the construction sector, adding that a high-level steering committee led by the bank’s governor and including representatives from Naya Pakistan Housing Development Authority, several bank presidents and other stakeholders had been meeting weekly to resolve issues facing housing.
“The Steering Committee has five sub-committees dedicated for various work streams with multiple operational level groups working at a fast pace,” it said, adding banks have also been asked to gear up appropriately by developing their infrastructure and capacity to meet the mandatory housing finance targets. “SBP has instructed banks to present a concrete action plan … within 15 working days, containing quarterly targets, development of products, media campaigns, development of technology infrastructure, and capacity building of staff, amongst other areas,” it said.
Banks have also been directed to report data regarding approval and disbursements against the set targets every month, starting from September 2020.
The SBP said it hopes the government would support bank financing for the construction sector through measures such as an efficient foreclosure law and its implementation; automation and computerization of land and property records; and reduction in time required for registration and creation of mortgages.
The government, added the bank, should also create a Real Estate Regulatory Authority to address the concerns of banks regarding standards of developers and builders and also attempt to reduce the cost of transactions in property transfers.