Banks reluctant to lend for house financing

KARACHI: Commercial banks are reluctant to boost house financing through lending as their gross loans failed to show any significant growth but depicted a decrease of 1.9 percent by the end of first quarter of 2014 over corresponding period of yesteryear despite of stable discount rates for past many months.
The gross outstanding finance reached to Rs 51.6 billion as of March compared to Rs 52.6 billion as on March 31, 2013, showing a decrease of Rs 1 billion or 1.90 percent over the year, State Bank of Pakistan Housing Finance Quarterly Review said. Though, the lending gross outstanding reached to Rs 51.6 billion showing an increase of 0.58 percent or Rs 0.3 billion over last quarter ending in December 2013.
The central bank commented banks have not pursued housing finance products due to lack of implementation of foreclosure law, titling issues and availability of risk free investment avenues.
Another reason hindering the growth of housing finance in Pakistan is reluctance of banks for lending outside few big cities. Moreover, the lack of effective institutional framework and secondary mortgage market and long term funding arrangements are still the major constraints towards the growth of housing and housing finance which is one of key drivers of the economy.
The gross outstanding of the banking sector remained stagnant or decreased over the year except for Islamic banks, which showed an increase of 5.34 percent from previous quarter and reached to Rs12.3 billion by the end of March 2013.
The gross outstanding housing finance as on March 31, 2014 of Islamic Banking Industry (five Islamic Banks (IBs) and 14 Islamic Banking Divisions (IBDs) of conventional banks) stood at Rs 15.49 billion.
The commercial banks accounted for Rs 39.3 billion of the total outstanding as of first quarter’s end, a 1.46 percent decline since quarter ending March 31, 2013.  The private banks reported Rs 20.6 billion followed by Islamic banks at Rs 12.3 billion, public sector banks at Rs 6.3 billion and foreign banks with Rs 0.3 billion.
The outstanding loans of House Building Finance Corporation (HBFC) were Rs 12.2 billion down by 2.67 percent over the last year. Other DFIs had a meager share of Rs 0.1 billion in outstanding loans.
The outstanding loans net of non-performing loans in the category up to Rs 1 million as Rs 3.13 billion and Rs 1.78 billion against 12,483 borrowers and 5,303 borrowers respectively.
In second category above Rs 1 million to Rs 5 million, HBFC reported Rs 1.83 billion and all bank and DFIs reported Rs 10.04 billion outstanding. In the third category above Rs 5 million, HBFC reported Rs 0.79 billion and all banks DFIs reported Rs 17.86 billion outstanding.
The overall market share based on gross outstanding of commercial banks (excluding DFIs) remained unchanged at 76 percent compared to the corresponding period last year. 
Within commercial banks, the share of public sector banks in the total outstanding decreased to 12 percent from 13 percent and the share of HBFC in the total outstanding increased from 23 percent to 24 percent over the year.
The share of private sector banks decreased to 39 percent from 44 percent over the year. 
The share of Islamic banks increased to 24 percent from 18 percent and the share of foreign banks remained unchanged at one percent over the year.
The share of conventional banking (excluding HBFC), Islamic Banking Industry and HBFC in the total outstanding was 49 percent, 27 percent and 24 percent respectively as on March 31, 2014. IBDs (12 windows) and Islamic banks (05 banks) have 14 percent and 86 percent share respectively (IBDs share decreased to 14 percent from 22 percent over the year) in housing finance portfolio of Islamic Banking Industry.

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