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Banks to be Penalized for Not Meeting House Financing Targets

The State Bank of Pakistan (SBP) has tightened the noose on banks for promoting house financing in accordance with the target, warning them of a heavy penalty in case the set targets are not met.

It has been decided that a penalty will be imposed on the banks that fall short of their Government’s Mark-up Subsidy Scheme (G-MSS) targets, with effect from 31 July 2021 on both the targets of a number of housing units and the amount of disbursements, according to a recently-issued circular.


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The SBP set an annual target for banks which makes it mandatory for them to enhance the share of housing financing to 5 percent of the overall loan/financing disbursement every year.

The target was considered ambitious but was set in consideration of the promotion of housing financing and the construction industry of Pakistan, which ultimately uplifts the economic development and employment opportunities across the country.

The target will boost the government-supported low-cost housing schemes but it will also provide financing to the builders and developers of the country, and the financing instruments based on the RIETs.

In response, commercial banks commenced an aggressive drive of housing finance, including approaching customers to meet the target. The house financing has reached nearly Rs. 100 billion so far, but it has more potential keeping in view that the impediments in the housing sectors are removed.


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Despite the efforts of the banks, it appears that they are still reluctant to extend loans for the low-income housing projects or houses that frustrate the government’s top ranks. The government’s prime agenda was the provision of 10 million jobs and five million low-income housing loans.

The SBP also relaxed the terms of services at the customers’ end to ensure that the financing picked up the pace. In mid-June, the SBP asked the banks to come out with their informal income proxy models operational for low-cost housing within four weeks as the process of lending for housing is still well below the expectations of the government.

The banking regulator finally has come up with a warning for banks in terms of the penalty.

The latest circular issued on Tuesday read: “A baseline penalty will be charged on shortfall from cumulative targets till July 31, 2021 while a higher penalty will be charged on the shortfall from targets of subsequent months”.

The SBP said that banks are expected to make all-out efforts to harness the full potential of the scheme.


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The penalty charged on a bank will be adjusted after a review of its efforts in terms of the logins of applications, the approvals of housing finance, the results of the SBP’s latest mystery shopping surveys, the involvement of the bank’s management, evidence of board information and support, sales and marketing efforts, innovation in delivery channels, and the capacity building of the staff and human resource (headcount) involved in G-MSS, said the SBP.

The circular further read: “To assess efforts, [the] State Bank will, if required, collect information from banks which fail to meet their targets”.

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