Increasing Trend of Commercial Banks Financing in the Housing and Construction Sector

Due to the rapidly growing population and economic instability around the world- especially after the Covid-19- the developing countries are suffering because of a lack of basic necessities like health, education, and adequate food for the common man. It has become a dream come true for any person to buy or build a personal home according to their means.

Especially in developing countries like Pakistan, most working people leave the mortal world with an unfulfilled dream of a private home for their family, despite saving a single rupee from their monthly income for the rest of their lives.

In such cases, financing from commercial banks or getting a loan can be the best decision for working professionals or low-income people to fulfill their dream of owning a personal dream home. We saw a sharp increase in the trend of financing from commercial banks in the housing and construction sector in the last few years.

Under the government's Mera Ghar Scheme, the State Bank of Pakistan has issued instructions to all commercial banks to provide people with complete guidance and ease in obtaining loans.

That is why in view of the growing financing trend from commercial banks, commercial banks provided loans costing Rs 355 billion for the purchase, construction, renovation, and other residential and commercial construction projects of houses in 2021, following the instructions of the SBP.

Depreciation of the rupee against the dollar creating economic instability in Pakistan

One of the main reasons for the economic instability in the country is the continuous depreciation of the rupee against the dollar. For that reason, not only the business community, the commoner has also lost his purchasing power due to inflation.

The experts say that record remittances from Pakistanis abroad during the last year have mitigated some pressure on the Pakistani rupee in the market. The inflation rate in Pakistan has reached the 12.66%, the Federal Bureau of Statistics discloses.

Obviously, if a dollar goes above Rs 176, inflation will rise. The people most affected by the rise in the dollar's value are those living in cities where prices of essential commodities are growing every day. In addition to construction costs, house rents have risen sharply in the past year.

85% increase in the disbursement of loans by commercial banks

Of course, obtaining loans from commercial banks has been a complex process for the common man in the past. Over time, the State Bank of Pakistan has taken various encouraging steps to facilitate bank financing.

The increasing trend of obtaining home loans from commercial banks can be ascertained from the fact that we have experienced an 85% increase in disbursement of loans by commercial banks during the last two years.

Last year, in 2021, an unprecedented increase of Rs 163 billion was recorded in housing and construction loans, including funds of Rs 38 billion under the incumbent government's Mera Pakistan Mera Ghar Scheme.

One of the top reasons for this increasing trend in the acquisition of loans in the housing and construction sectors is the unexampled regulatory measures introduced by the SBP and the commercial banks.

The State Bank of Pakistan had also instructed all commercial banks to ensure loans disbursements up to 5% of the country's private sector by the end of last year. The SBP also imposed fines on various banks for the non-implementation of the prescribed SOPs.

A crucial role of commercial banks in the wake of increasing financing trends

Undoubtedly, Bank Al-Falah, Habib Bank Limited, Meezan Bank, and Bank Al Habib played a key role in the list of commercial banks regarding the increasing trend of disposal of loans during the last year. Mera Pakistan Mera Ghar Scheme was introduced in the year 2020, and in just a short span of one year, the provision of Rs. 38 billion under the existing scheme was ensured.

Bank Al-Falah topped the list by providing loans of Rs 3.3 billion

Bank Al-Falah topped the list with a total loan of Rs 3.3 billion. In total, about nine banks were the ones that issued loans up to Rs 2 billion. These banks include Meezan Bank, Bank Islami, National Bank, Standard Chartered Bank, NBFCL, United Bank, Muslim Commercial Bank, Bank of Punjab, and Habib Bank.

At the beginning of last year, the issuance of loans by banks was recorded at zero digits. However, at the end of 2021, overall commercial banks received loan applications of Rs 276 billion while the volume of approved loans reached Rs 117 billion.

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