Consumer loans continued upward momentum and increased by Rs 70.5 billion in FY17 compared to Rs 43.7 billion in FY16. The disbursed amount in the last fiscal year is some 61 percent or Rs 26.8 billion higher than the amount disturbed in previous year, the central bank reported.
This flow mainly emanated from auto financing, which held 54.3 percent share in consumer financing during FY17. In addition to low interest rates, the introduction of new models of passenger cars and increasing popularity of ride-hailing services played a significant role in auto-financing uptick. The rest of the expansion in consumer lending is largely explained by financing in segments like personal and housing loans, which increased by Rs 14.2 billion and Rs 12.5 billion, respectively.
From institutional perspective, the impetus to consumer financing is lately coming from Islamic Banking Institutions (IBIs), especially in the areas of housing and car financing. In case of car financing, the share of IBIs rose to 43.1 percent at end FY17.
Their penetration in housing finance is even more encouraging and they now dominate this segment with 60.9 percent share in the overall portfolio of the banking industry. The majority of housing finance was taken for outright purchase, followed by construction, and lastly renovation; this pattern was applicable in case of both Islamic and conventional loans.
The report also highlighted the issues relate to housing finance and revealed that in case of housing finance, a weak valuation mechanism for real estate and legal glitches faced by commercial banks in exercising their right to collateral has been one of the major restrictive factors in Pakistan.
In the absence of a strong non-judicial foreclosure framework in the country, it takes a huge amount of time and money for the banks to take possession of, and sell the collateralized properties upon borrowers'' default. To address this, amendments have been made in the Financial Institutions (Recovery of Finances) Ordinance, which ensures collateral foreclosure for banks without recourse to courts, the report said.
The SBP is expecting that the judicious application of these amendments is likely to bring positive impact on credit expansion to households, especially mortgage loans. Further impetus to domestic mortgage financing would be provided by the Pakistan Mortgage Refinancing Company (PMRC), which is expected to become operational in 2017.
The PMRC was incorporated in 2014 with the objective of promoting mortgage finance. Facilitated by the SBP, the PMRC aims to develop the primary mortgage market by providing financial resources so that primary mortgage lenders can grant more loans to households at fixed/hybrid rates for longer tenure and reducing the mismatch between house loan maturities and source of funds, besides ensuring loan standardization across primary lending institutions. Simultaneously, it would also help develop capital markets - by providing more private debt securities and asset backed securities to raise funds - and create a benchmark yield curve.
Copyright Business Recorder, 2017