Following the announcement over the weekend of a major incentives package to support the construction and housing industry, the SBP announced yesterday that it has stipulated banks to enhance their mortgage loans and financing for builders/developers to at least 5% of their private sector credit by December 2021. To recall, the government in its incentives package for the construction industry included a PKR 30bn subsidy for the Naya Pakistan Housing Project (NPHP) that would focus on supporting the provision of cheap housing for the masses. The most prominent feature of the package is that source of funds will not be questioned for those availing this facility, which is available until Dec’31 2020.

The SBP highlighted in its press release that the government is committed towards increasing housing units throughout the country and the construction sector is a vital pillar of the economy. Banks will be required to submit an action plan to the SBP within 15 working days, detailing quarterly targets and strategies that will focus on achieving the targets set by the Central Bank. From Sep’20 onwards, banks will also be required to submit monthly data on the disbursements and approvals with regards to the targets.

As at May’20, total private sector credit stands at PKR 6,259bn. Currently a 5% allocation for housing/construction would set aside PKR 235bn (excluding bank employees). Assuming a 10% growth in total private sector loans by Dec’21, the banking sector is expected to set aside additional PKR 23bn for housing/construction. Out of the listed banks, currently only UBL (6.4%) and MEBL (5.7%) have exposures towards construction that exceed 5% of their private sector loans. Amongst small banks, BOK (3.85%) and SNBL (3.54%) lead the charts with highest exposures to the construction sector. Currently listed banks’ exposure towards the construction sector (PKR 190bn) accounts for 1.3% of their private sector loans (excluding bank employees’ loans). (AHL Research)