Home fi­nanc­ing

The Pak Banker - - FRONT PAGE -

Home fi­nanc­ing has al­ways been a tick­lish is­sue for the pub­lic. Against this back­ground, it is a wel­come de­vel­op­ment that the Pak­istan Mort­gage Re­fi­nance Com­pany (PMRC) has started its op­er­a­tions with ini­tial funds of Rs6 bil­lion to boost the hous­ing sec­tor. PMRC Chief told the me­dia the other day that the com­pany would is­sue mort­gage bonds like cor­po­rate bonds in the do­mes­tic mar­ket. He also ex­pressed the hope that the World Bank will ap­prove a $140 mil­lion loan for the PMRC soon, which would help strengthen the bal­ance sheet of the com­pany. The PMRC would pro­vide loans at a fixed rate to banks which will then pro­vide hous­ing loans to end users at the same rate.

At present, the banks have to take risk as they pro­vide long-term hous­ing loans while they have short-term de­posits. Most of the de­posits in the banks are meant for less than one year which is the main hur­dle in giv­ing long-term loans. At present, the PMRC has Rs6bn funds with Rs1.2bn con­trib­uted by the fed­eral gov­ern­ment and the rest was con­trib­uted by nine com­mer­cial banks. Re­port­edly, the PMRC is also in con­tact with the In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC) and Asian De­vel­op­ment Bank (ADB) to get sup­port for the mort­gage hous­ing de­vel­op­ment.

Ac­cord­ing to fig­ures re­leased by the State Bank, the hous­ing loanto-GDP ra­tio in Pak­istan is 0.7 per cent, which touched its peak at 1pc in 2005. This is the low­est ra­tio around the world, and also in the re­gion with In­dia stand­ing at around 7.8pc. The re­port said that in case Pak­istan tar­geted to achieve a share of mort­gage debt to the coun­try's GDP at say 5pc within the next four years, the fi­nan­cial mar­ket would need Rs450 to Rs500bn as long-term funds sup­ported the tar­get. On an av­er­age, about 2.5pc of the con­ven­tional com­mer­cial banks to­tal ad­vances is mort­gage fi­nance, with an av­er­age ten­ure of about 10 years. The av­er­age re­ten­tion of mort­gage loan is about 12 years. The en­tire mort­gage port­fo­lio is funded by short-term de­posits, cre­at­ing a se­vere ten­ure mis­match.

Af­ford­able hous­ing has al­ways been a big prob­lem in Pak­istan. Lately, banks and fi­nan­cial in­sti­tu­tions in Pak­istan are tak­ing in­ter­est in mort­gage fi­nance. The SBP's Quar­terly Hous­ing Fi­nance Re­view has re­vealed that the hous­ing fi­nance is con­tin­u­ously in­creas­ing and posted a healthy growth of some Rs 4.9 bil­lion during the first half of the cal­en­dar year. With the cur­rent surge, the over­all hous­ing fi­nance port­fo­lio of all banks and DFIs has reached Rs 65.70 bil­lion com­pared to Rs 60.80 bil­lion pre­vi­ously, show­ing an in­crease of 8 per­cent. As things stand today, HBFCL is the largest lender and share­holder in terms of gross out­stand­ing, with 24 per­cent as the out­stand­ing loans of HBFCL amount­ing to Rs 15.46 bil­lion.

Cat­e­gory-wise, Is­lamic banks are the largest play­ers with 38 per­cent share in gross out­stand­ing. Over­all Is­lamic and pri­vate banks are ma­jor con­trib­u­tors to gross out­stand­ing of hous­ing fi­nance. The share of pri­vate banks and Is­lamic Banks (IBs) in the gross out­stand­ing stood at 30 per­cent and 38 per­cent, re­spec­tively as on June 30, 2017. Four­teen Is­lamic Bank­ing Di­vi­sions (IBDs) and five IBs have 12 per­cent and 88 per­cent share, re­spec­tively in hous­ing fi­nance port­fo­lio of Is­lamic Bank­ing In­dus­try. With the new ini­tia­tive now launched by PMRC it is hoped that the home fi­nance mar­ket in Pak­istan will ex­pand rapidly in com­ing years mak­ing it eas­ier for peo­ple to ob­tain loans house build­ing.

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