Islamic banks leading housing finance

The recently released quarterly housing finance review by the central bank reveals that housing finance portfolio during the quarter ended March 2015 saw meager growth Rs0.8 billion, taking the total size of outstanding loans to Rs54.5 billion, from Rs53.7 billion in December 2014. Clearly, in the face of falling interest rates that’s a sorry state of affairs.
Both the government and housing experts are well aware of the urgent need to focus on Pakistan’s housing problem. One of the fundamental constraints to own a housing unit is the lack of necessary funds, which could be generated by borrowings from the banks. However, banks have been reluctant to lend mortgages in Pakistan.
The latest housing finance review shows that both private and public banks saw a decrease of 8 percent and 3 percent respectively in their gross outstanding loans in the year-on-year analysis. However, Islamic banks and HBFCL’s gross outstanding went up by 33 percent and 6.5 percent respectively. In other words, Islamic banks led the growth in housing finance during the period; that of all other declined.
The central bank report shows that the gross outstanding of housing finance of Islamic banking industry (5 Islamic banks and 14 Islamic banking divisions of conventional banks) stood at Rs19.40 billion as on March 2015 compared to Rs 18.41 billion in December 2014. Islamic banks now make up over 30 percent of total gross outstanding as of March 2015, from 24 percent in March 2014, and 18 percent January 2013.
HBFCL, which is the largest player in housing mortgage along with Islamic banking, remained major contributors in gross outstanding of housing finance during the year. Islamic banks showed an increase and reached to Rs16.3 billion by the end of March 2015. HBFCL showed an increase of 3.15 percent over the previous quarter.
The nonperforming loans of the housing sector as a percentage of total outstanding loans of HBFCL has decreased to 38 percent in year-on-year compression, but it is still on a higher side. The public banks, the DFIs and the foreign banks saw their NPLs rise up during year-to-year comparison. However, the NPLs of Islamic banks fell from 12 percent of total outstanding as on March 31, 2014 to 9 percent in March 2015. Ergo, Islamic banks also emerge as a winner on that account.