SBP wants banks to tap housing finance potential

KARACHI: The State Bank of Pakistan (SBP) on Monday urged banking industry to benefit from government subsidy on low-cost housing finance and extend loans to their maximum potential.

SBP Deputy Governor Jameel Ahmed said the risk coverage of mortgage portfolio under government markup subsidy facility provides due comfort to banks in extending housing finance to the low income segment for buying or construction of new houses.

Ahmed also urged the Pakistan Mortgage Refinance Corporation (PMRC) to focus on developing secondary mortgage market through issuance of mortgage-backed securities in the capital market.

“All stakeholders are needed to make concerted efforts to achieve the goal of providing housing to the common people,” he said during a signing ceremony of master guarantee agreement between Credit Guarantee Trust for low income housing and partner financial institutions.

SBP official lauded the efforts by financial institutions over the last few months under the umbrella of steering committee on housing and construction finance established by State Bank of Pakistan.

A Credit Guarantee Trust, with PMRC as trustee, has been set up by the government with the support of SBP and funded by the World Bank.

The trust will provide risk coverage of up to 40 percent to primary mortgage financiers on first loss basis. The guarantee will partially alleviate the credit risk of primary mortgage financiers and provide a conducive environment for banks to finance housing for the low-income. Keeping in view the dynamics of mortgage market and to facilitate market growth, the scheme has been designed for both conventional and Islamic banks.

PMRC signed the master guarantee agreement with six leading Islamic and conventional banks, including Meezan Bank, Habib Bank, BankIslami, Faysal Bank, JS Bank and Soneri Bank.

The SBP last month issued five regulatory relaxations to incentivise banks to promote low-cost housing finance in the country. Banking industry can enjoy markup subsidy facility by the government and regulatory incentives under low-cost housing finance. The value of housing unit has been increased from Rs3 million to Rs3.5 million and maximum loan size from Rs2.7 million to Rs3.15 million.

Mudassir Khan, managing director and chief executive officer of PMRC, said the credit guarantee scheme will pave the way for the banking industry to extend housing finance to the low income group, a market segment which has remained negligible for long.

“PMRC has a role of a catalyst in mortgage market development in the country and for growth of affordable housing in the country,” he said. Government allocated Rs33 billion for payment of markup subsidy on housing financing over a period of 10 years.

The SBP requires banks to achieve mandatory targets, equivalent to 5 percent of their domestic private sector credit by December 31 next year to enhance the flow of housing and construction financing.