Housing finance: SBP raises exposure limit to 25pc of mandatory targets

KARACHI: The State Bank of Pakistan (SBP) has announced increase in the exposure limit on eligible investments/financing up to 25 percent of the mandatory targets for housing and construction finance.

With a view to promoting housing and construction of buildings (Residential and Non-Residential) in Pakistan, State Bank had advised mandatory targets to banks.

As per previous directives, issued in April, exposures will be considered on aggregate basis up to a maximum of 15 percent of mandatory targets for housing and construction finance of a bank/DFI.

Now, the SBP Wednesday further increased the exposure limit by 10 percent. The exposure limit on eligible investments/financing has been increased to 25 percent of mandatory targets for housing and construction finance from 15 percent of the same.

The SBP has already advised the banks to gear up their infrastructure and capacity to ensure compliance of meeting these targets. Accordingly, each bank is also required to develop a concrete action plan with detailed measures and their timelines to achieve its housing and construction finance targets.

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As per the SBP directives, this action plan should contain breakdown of overall targets into quarterly targets, development of suitable products, launching of media campaigns, development of internal technology, capacity building of staff, and other actions needed to ensure the target is being met.

In April 2021, in order to increase funding for housing and construction through capital markets and microfinance banks (MFBs), the State Bank allowed the counting of following exposures of banks/DFIs towards achievement of their housing & construction finance mandatory targets:

a. Direct financing to/or investments in bonds/TFCs/Sukuk issued by Real Estate Investment Trusts (REITs) Management Companies.

b. Investments in units/shares issued by Real Estate Investment Trusts (REITs) subject to compliance with all other applicable regulations.

c. Investment in Sukuk/bonds issued by Pakistan Mortgage Refinance Company (PMRC), however, investment in PMRC’s Sukuk/bonds and amount of refinancing availed from PMRC shall be netted off towards counting the mandatory target.

d. Financing to 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 SBP is closely monitoring the progress on the mandatory targets and non-compliance in meeting the targets will attract punitive action under the relevant provisions of the Banking Companies Ordinance, 1962.

Copyright Business Recorder, 2021