Banks approve Rs180 billion in low-cost housing loans

KARACHI: The State Bank of Pakistan (SBP) on Thursday said that the banks have approved Rs180 billion as loan for the low-cost housing.

Building upon the current momentum, the banks have shown strong progress in approving and disbursing the financing under Mera Pakistan Mera Ghar Scheme against the manifold increase in applications by the borrowers to avail housing finance, the central bank said.

Till April 11, 2022, the banks received applications for housing finance amounting to Rs409 billion, which was merely Rs57 billion a year ago, reflecting an increase of more than seven times. Of these, the banks have approved applications amounting to Rs180 billion and disbursed Rs66 billion against the approved applications.

This shows an increase in the approvals of applications of more than 11 times as, a year ago, in April 2021, the banks had approved only Rs16 billion.

Similar trends can also be observed in the overall financing to the housing and construction sectors by the banks. The banks almost doubled their housing and construction finance portfolio to Rs404 billion as of March 31, 2022 from Rs204 billion a year ago.

In increasing their housing and construction finance, the banks have also achieved almost 100 per cent first quarter target of Rs405 billion for 2022.

To improve provision of financing for the housing and construction sector and to increase adequate housing in the country and boost construction sector activities, the State Bank of Pakistan with the support of the government of Pakistan has taken several measures since July 2020.

In October 2020, the government augmented these efforts by introducing the Government Markup Subsidy Scheme, now commonly known as Mera Pakistan Mera Ghar (MPMG) Scheme. Available in both conventional and Islamic mode, this scheme enables the banks to provide financing for the construction and purchase of houses at very low financing rates for low- to middle-income segments of the population.

Key initiatives taken under MPMG scheme included allowing acceptance of third party guarantee during the construction period, waiver of debt burden ratio (DBR) in the case of informal income and the introduction of standard facility offer letter by the banks.

The SBP also advised the banks to develop and deploy income estimation models for the borrowers with informal sources of income.

In addition to gauge readiness, knowledge and appropriateness of behaviour of the banking staff towards customers, regular mystery shopping of banking branches were also conducted by the State Bank across the country.

The current progress under MPMG is also attributed to the banks’ improved preparedness for handling housing finance that includes alignment of the banks’ strategic focus, continued improvements in their systems and procedures, training and capacity-building of staff, extensive marketing and leverage of technology to reach out to customers.

These improvements have helped the banks in better handling of financing requests of potential customers. The huge influx of applications and subsequent approvals of financing by the banks under the scheme indicates that the current momentum of disbursements under MPMG will continue in the coming months, as well.

The SBP also advised the housing and construction finance targets to the banks on July 15, 2020. The banks were required to increase their housing and construction finance portfolio to 5 per cent of their domestic private sector advances by the end of 2021. As a result, the banks’ financing to the housing and construction sector increased to Rs367 billion as of December 31, 2021 from Rs148 billion as of June 30, 2020.

For 2022, the banks have been advised to increase their housing and construction portfolio to 7 per cent of their domestic private sector advances, i.e., up to Rs560 billion.