KARACHI: The State Bank of Pakistan (SBP) has allowed banks and DFIs for investment in TFCs, Sukuk and shares issued by Real Estate Investment Trusts (REITs) management companies to achieve the 5 percent mandatory targets for housing and construction finance.
With a view to promoting housing and construction of buildings (Residential and Non-Residential) in Pakistan, in July last year, the State Bank decided to advise mandatory targets to banks. Accordingly, each bank was asked to ensure that the financing for housing and construction of buildings (Residential and Non-Residential) must be at least 5 percent of their domestic private sector credit by December 2021.
Now, in order to increase funding for housing and construction through capital markets and microfinance banks (MFBs), State Bank has decided to allow counting of some more exposures of banks/DFIs towards achievement of their housing & construction finance mandatory targets.
As per SBP’s fresh directives, banks and DFIs can direct financing to/or investment in bonds/TFCs/Sukuk issued by Real Estate Investment Trusts (REITs) management companies.
Banks and DFIs can make investments in units/shares issued by Real Estate Investment Trusts (REITs) subject to compliance with all other applicable regulations.
They are also allowed 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.
In addition, banks and DFIs can provide the financing to MFBs for extending housing finance to eligible borrowers to the extent of actual disbursements by MFBs. However, banks extending financing to MFBs for housing finance will have to report such transactions to SBP separately.
However, the SBP mentioned that the 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 on a given date.
The SBP has already directed banks to gear up their infrastructure and capacity to ensure compliance of meeting these targets. Accordingly, each bank is required to develop a concrete action plan with detailed measures and their timelines to achieve its housing and construction finance targets. 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 5 percent target is met.