SBP raises targets for housing and construction finance

The SBP has increased financing target for banks from 5% currently, to at least 7% of their domestic private sector credit by December 2022. Banks falling short of their quarterly financing targets will maintain additional CRR in the next quarter, by the amount equivalent to two times of the shortfall in achieving the financing target. The CRR is presently 6%, having been raised by 1ppt a few months ago. 

The SBP’s new directives should assist with the government’s low-cost housing schemes – Naya Pakistan (5mn houses over a 5 year period) and Mera Pakistan Mera Ghar scheme (subsidized loans up to PKR10mn for maximum tenor of 20yrs). The plan holds clear positives for the Construction sector; but, if NPL risks are not managed adequately, potential negatives can arise for Banks. To this end, the SBP has allowed acceptance of third party guarantees during the construction period, while advising banks to develop and deploy income estimation models for borrowers with informal sources of income.

As per latest available data (Dec 2021), outstanding credit for housing and construction has reached c.PKR355bn or 4.55% of the stock of private sector credit – with banks nearly achieving the initial 5% target set for December 2021. Shortfall on the revised 7% target has to be bridged by December 2022. HBL, MEBL and BAHL were the top three contributors in the growth of Housing and Construction finance, while BAFL emerged as the leading bank with highest disbursement of PKR3.3bn (or c. 8.5% of total disbursements) in the Mera Pakistan Mera Ghar scheme.

The increase in house financing target will likely increase cement dispatches, and should help achieve our expected local cement demand growth of 7%/5% in FY22/23f. This may make up for a potential cut in the PSDP target  / infrastructure development, if there is a need to reduce the fiscal deficit. 

Loans disbursed to the housing sector (PKRbn)

2020

% allocation

2021

% allocation

Financing requests under MPMG

        –

 

276

 

Disbursements under MPMG

        –

 

38

 

Credit disbursed to the housing sector

192

2.95%

355

4.55%

Total Private Sector Credit

6,515

 

7,797

 

Source: SBP and IMS Research

  

  

  

  

Courtesy –  Intermarket Securities Limited

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