KARACHI: State Bank of Pakistan announced on Friday regulatory relaxations for banks to encourage financing low cost and affordable housing for people.

The relaxations by the central bank come as it understands that credit provision in this sector by commercial banks have been less than 1 per cent of GDP “which is much lower than in other similar countries and in the region”, their statement read.

“This is an important sector that has significant economic linkages with other sectors in the economy,” said the bank suggesting that motivating banks into financing affordable housing so other sectors may benefit from this as well.

According to SBP, the value of the housing unit has been increased from Rs 3 million to Rs 3.5 million with a maximum loan size increased from Rs 2.7 million to Rs 3.15 million.

It says with the increase in the minimum loan facility, the banks will not only enjoy more markup subsidy facility on the credit but also the low-cost housing finance incentives as well.

Secondly, the banking regulator has now allowed commercial banks a relaxation on documentary evidence from borrowers. SBP said it understands that people from applying for low-cost housing finance may face difficulties in furnishing documentary evidence to establish credit-worthiness.

“In order to facilitate financing for this segment, State Bank is urging the banks to use alternate methods to identify income sources and assess the creditworthiness of the borrower.”

On the other hand, SBP said it is exempting commercial banks from another requirement till September 30, 2022 in low-cost housing finance as they will be allowed to skip Internal Credit Risk Rating System –a system to analyze the feasibility and risk management on the given loan– and now the borrowers who previously could not get the loan for failing to qualify credit rating standards, will now be able to avail it.

The bank said with all the relaxations it has hammered out, it is expected to provide further impetus to on-going efforts to accelerate housing and construction finance in Pakistan.

“It is reminded that banks have already been given mandatory targets of 5% of their private sector advances as housing and construction finance by December 31, 2021.”