SBP issues payment mechanism for housing finance markup subsid | Regulatory Updates Of Pakistan

SBP issues payment mechanism for housing finance markup subsidy

State Bank of Pakistan (SBP) on Monday issued mechanism for payment of markup subsidy for housing finance and issued instructions to banks and development financial institutions (DFIs) for the facility.

The SBP advised banks to submit their claims to Development Finance Support Department (DFSD), SBP BSC, Karachi as per instructions contained in the attached payment mechanism within 15 working days from the end of each Quarter.

However, the banks shall submit their claim within 15 working days for the quarter ending December 2020 and March 2021 from the date of issuance of this circular.

According to markup subsidy payment mechanism (MSPM), the SBP said that the government had issued markup subsidy scheme to provide concessional housing finance for promoting home ownership.

The SBP issued necessary instructions to all commercial banks, microfinance banks and HBFCL through a circular no. 03 dated March 25, 2021 and revised instructions issued from time to time.

All loans disbursed under the scheme shall be reported to SBP under housing finance.

Under the Scheme, loans are segregated into four tiers:

i. Tier 0 (T0) – (a) House up to125 sq yds (5 Marla) and (b) flat/apartment with maximum covered area of 1,250 sq ft.

ii. Tier 1 (T1) – (a) House up to125 sq yds(5 Marla) with maximum covered area of 850 sq ft and (b) Flat/apartment with maximum covered area of 850 sq ft.

iii. Tier 2 (T2) – (a) House up to125 sq yds (5 Marla) and (b) flat/apartment with maximum covered area of 1,250 sq ft.

iv. Tier 3 (T3) – (a) House up to250 sq yds (10 Marla) and (b) flat/apartment with maximum covered area of 2,000 sq ft.

Pricing for Housing Loans

Loan Tiers Customer Pricing Bank Pricing
Tier 0 5% for first 5 years & 7% for next 5 years 1 Year KIBOR + 700 BPS
Tier 1 3% for first 5 years & 5% for next 5 years 1 Year KIBOR + 250 BPS
Tier 2 5% for first 5 years & 7% for next 5 years 1 Year KIBOR + 400 BPS (Spread may vary)
Tier 3 7% for first 5 years & 9% for next 5 years 1 Year KIBOR + 400 BPS (Spread may vary)
For loan tenors exceeding 10 years, market rate i.e. bank pricing will be applicable for the period exceeding 10 years.
Procedure for loans disbursements and availing markup subsidy:

EAs shall evaluate financing applications of customers as per parameters of Markup Subsidy Scheme for Housing Finance approved by the Federal Cabinet and circulated by the State Bank of Pakistan to all banks/DFIs vide IH&SMEFD Circular No. 03 dated March 25, 2021 and revised from time to time. The financing facility for a borrower shall be sanctioned and disbursed by the EA after completion of documentation formalities. These financing shall be entitled for markup subsidy as prescribed above. No further evaluation on eligibility of borrowers would be conducted by the State Bank of Pakistan.

Calculation of Equally Monthly Installment (EMI) for Borrower

For first five years EMI, amortization schedule would be prepared for full tenor of financing at markup rate i.e. 3 percent, 5 percent or 7 percent depending upon the financing tier.

EMI for next five years i.e. 6th year to 10th year would be on the basis of amortization schedule prepared at the applicable subsidized markup rate (i.e. 5 percent, 7 percent or 9 percent depending upon the financing tier) on outstanding principal for remaining financing tenor.

After 10th year of financing, EMI would be calculated on the basis of amortization schedule at applicable markup rate.

Calculation of Markup Subsidy for Banks

After calculating the EMI for end user, the EAs will calculate the difference to be paid by Government of Pakistan by applying the difference between 1-Year KIBOR + spread and end user markup rate on the outstanding principal.

The banks will calculate the subsidy for the period of markup subsidy i.e. 10 years.

Mechanism for Payment of Markup Subsidies: Payment of subsidy to EAs will be made through SBP’s operational arm viz. Development Finance Support Department (DFSD), SBP BSC, Head Office, Karachi.