SBP amends capital adequacy regulations to boost REITs
- SBP has lowered the applicable risk weight from 200% to 100% on banks/ DFIs’ investments in the units of REITs
In a bid to facilitate the country’s real estate sector, State Bank of Pakistan (SBP) on Wednesday amended its capital adequacy regulations for banks/ DFIs’ investment in Real Estate Investment Trusts (REITs).
The central bank has lowered the applicable risk weight from 200% to 100% on banks/ DFIs’ investments in the units of REITs. It is pertinent to mention that REITs are companies that raise funding from general public and institutions and deploy these funds through investment in real estate properties.
“Considering the nature of underlying exposure of REITs, banks’ investment therein shall be categorized in the ‘Banking Book’ instead of ‘Trading Book’,” read a SBP circular.
It added that banks investment in REITs will attract a uniform risk weight of 100%. “However, SBP may review this revised treatment after a period of five years based on the banks’ exposure and performance of REITs sector.”
The central bank was of the view that changes in capital adequacy regulations, will allow banks, DFIs to increase their investments in REITs without the need to allocate relatively large amount of capital, which will boost the real estate sector in the country.
SBP said that the increase participation of financial institutions would also encourage REIT Management Companies to launch new REITs, providing further boost to the development of housing and construction sectors.
The central bank has introduced a number of initiatives for the development of real estate sector.
Earlier, SBP amended certain provisions of its existing Prudential Regulations for Corporate & Commercial Banking to increase banks/DFIs participation in the REITs that enabled banks/DFIs to make higher investments in REITs to the tune of 15% of their equity as against the previous limit of 10%.
SBP has also allowed the banks to count their investments in shares/units/bonds/TFCs/Sukuks issued by REIT Management Companies towards achievement of their mandatory targets for housing and construction finance.
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