KARACHI: Commercial banks and DFI lending under house financing has increased significantly in the second quarter of 2015, showing an impressive growth of 12.44 percent over the year as of June on the improved interest of private and Islamic banks in the real estate business amid increasing economic activity in the country and the reduction in markup rates on financing.

According to State Bank of Pakistan’s data, financing of banks/DFIs and House Building Finance Company stand at Rs 52.7 billion by end of June 2014 that increased by Rs 6.5 to stand at Rs 59.2 billion by end of June 2015. The gross outstanding finance as on June 30, 2015 of all banks and DFIs stood at Rs 59.2 billion compared to Rs 54.5 billion in previous quarter, showing a substantial increase of Rs 4.7 billion (8.62 percent) over the quarter. Private banks reported Rs 21.55 billion followed by Islamic banks at Rs 17.99 billion, public sector banks at Rs 5.95 billion and others (foreign banks and other DFIs, excluding HBFCL) with Rs 0.42 billion.

Further, the outstanding loans of HBFCL were Rs 13.31 billion; up by 7.26 percent over the last year. Islamic and private banks remained major contributors in gross outstanding of housing finance during the year. Private banks showed a marked increase of 15.51 percent over the previous quarter. Islamic banks showed an increase of 10.43 percent from previous quarter and reached Rs 18 billion by the end of June 2015. The gross outstanding housing finance of Islamic banking industry {five Islamic banks (IBs)} and 14 Islamic Banking Divisions (IBDs) of conventional banks) stood at Rs 21.12 billion as on June 30, 2015, showing an increase of 8.87 percent.

The data confirms that primary housing finance market in Pakistan is in a nascent stage, which needs to be developed by creating an enabling environment and initiatives by public and private sector. The SBP stated that banks are focusing on high-end customers, as there is a need to increase primary mortgage market by extending services to low income and salaried class customers. However, the continued growth in housing finance portfolio is an encouraging sign which will likely get impetus by the banks due to declining policy rates and increasing interest in the business of real estate sector.

Markup rates of banks: On the year-on-year comparison, the overall weighted average markup rate settled at 12.6 percent as of June 2015, which was 13.2 percent by end of June 2014. The highest weighted average profit rate was reported as 19 percent by other financial institutions. Islamic banks’ rate stood at 12.2 percent and private sector banks at 9.7 percent. SBP reported that the average loan size for disbursements made during the quarter ending June 30, 2015 was Rs 5.5 million, whereas the average loan size for HBFCL was Rs 3.1 million. Private banks reported an average financing size of Rs 9 million, other financial institutions Rs 5 million and Islamic banks reported an average financing size of Rs 5.8 million. Public sector banks’ average loan size stood at Rs 4.5 million.

Non-performing loans: The non-performing loans of banking industry in the housing sector decreased significantly from Rs 14.16 billion from March, 2015 to Rs 13.51 billion till June, 2015, showing 4.60 percent decrease during the quarter. HBFCL’s NPLs showed a marked decrease of Rs 0.5 billion (10 percent) over the yester quarter ending March 2015. Also, HBFCL’s percentage share of NPLs in its total outstanding has decreased significantly by 17 percent over the year. At the end of current quarter, 33.77 percent of its total outstanding constitutes NPLs. HBFCL’s percentage share in total NPLs was 33 percent. Excluding HBFCL, NPLs for all banks and other DFIs decreased by 2.12 percent over the quarter while the percentage share of NPLs of all banks and other DFIs (excluding HBFCL) was 67 percent in total NPLs as on June 30, 2015.

Non-performing finances of Islamic banks marginally increased during the year from Rs 1.41 billion to Rs 1.47 billion. Their NPFs constitute 10.91 percent, as on June 30, 2015, of total industry NPLs. NPLs of the public sector banks increased by 25 percent from Rs 1.63 billion to Rs 1.96 billion over the year, which remained 33 percent of their gross outstanding as of June 2015. Moreover, private banks’ NPLs decreased by 10.17 percent, from Rs 5.94 billion to Rs 5.27 billion. NPLs other financial institutions decreased by 3.12 percent over the year.