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The State Bank of Pakistan (SBP) on Wednesday announced mandatory targets for banks to increase housing & construction financing to at least five percent of private sector credit by December 2021

The decision was made by the central bank in order to promote housing and construction of buildings activities in the country, as envisaged by the government. SBP has decided to set a mandatory target for banks to extend mortgage loans and financing for developers and builders.

As per the central bank, private 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.

SBP in a statement was of the view that meeting the housing shortage needs, requires a considerable amount of financing to meet the investment needs of the construction sector.

The central bank pointed out that in Pakistan, bank financing for mortgages and housing construction is less than one percent of GDP which is one of the lowest in the region. SBP said that banks have remained reluctant over the years to extend mortgage financing for various reasons.

SBP informed that a high-level Steering Committee, under the Chairmanship of Governor SBP and with representation from Chairman NAPHDA (Naya Pakistan Housing Development Authority), several bank Presidents and other stakeholders, is meeting every week to resolve issues and follow up on decisions to promote mortgage and construction financing, especially for NAPHDA projects.

Meanwhile, banks have been asked to gear up appropriately by developing their infrastructure and capacity to meet these targets.

SBP has instructed banks to present a concrete action plan to SBP, within 15 working days, containing quarterly targets, development of products, media campaigns, development of technology infrastructure, and capacity building of staff, amongst other areas.

Banks have also been directed to report data of approvals and disbursements against the targets on a monthly basis starting from September 2020.

SBP added that it believes that several measures on the part of the government will support bank financing for housing and construction-related sectors.

“These include passage of efficient foreclosure law and its effective implementation, automation and computerization of land and property records for the facilitation of clean title for bank lending and reduction in time taken in the registration of title & creation/perfection of mortgages, creation of a Real Estate Regulatory Authority (RERA) to address bank concerns of ensuring adequate standards of developers and builders, and reduction in transaction cost related to property transfers.”