SBP Increases Banks’ Exposure Limits to 25pc to Boost Housing Finance

In a major move to boost up housing finance, the State Bank of Pakistan (SBP) has raised the exposure to Boost Housing Finance and to raise the limit on eligible investment to 25 percent of the mandatory targets for financing in the Housing And Construction Sector Pakistan. Previously in April, the exposure was fixed at 15 percent of the mandatory targets. The SBP has already issued Instructions To Banks For Speedy House Loan Approvals to ensure compliance with orders and develop a comprehensive plan to meet the mandatory targets.

The central bank has already directed the banks to chalk out a break out a comprehensive strategy for breaking down the annual targets into quarterly targets. The State Bank of Pakistan has also decided to impose penalties on the banks that do not meet the minimum criteria of financing. The Central Bank has also given certain incentives to the banks like direct financing to or investment in bonds/ TFCs and Sukuk issued by Real Estate Investment Trust (RSIT) management Companies and investment in units/ shares issued by Real Estate Investment Trust.

The central bank in order to achieve its goal of maximum financing to the housing and construction sector initially in July 2020, advised the banks to banks and DFIs were advised to achieve mandatory financing targets for housing and construction equivalent to at least 5 percent of their domestic private sector advances. The target was to be achieved by the end of December 2020. The central bank in order to maximize financing for housing and construction decided to allow counting exposures of banks and DFIs towards the achievement of their housing and construction finance targets and the banks were allowed to invest in Sukuk or the bonds issued by Pakistan Mortgage Refinance Company (PMRC).

The new circular issued by the State Bank of Pakistan has increased the Exposure limit from the previous 15 pc to 25 percent. The circular states, “The exposure limit on eligible investments and financing has been increased to 25pc of mandatory targets for housing and construction finance from 15pc of the same.” The Central Bank is also monitoring the targets given to the banks and decided to penalize those who violate the regulations. In July 2021 the SBP said, “It has been decided that penalty will be imposed on banks falling short of their targets with effect from July 31 on both targets of the number of housing units and amount of disbursements”. The current move of the central bank reflects the policy of the incumbent government about its commitment with the public to construct 5 million houses and to create 10 million jobs.