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STATE BANK OF PAKISTAN - BANKING POLICY DEPARTMENT
BPD Circular No. 10 of 2005
March 19, 2005
The Presidents/Chief Executives,
HOUSING FINANCE: RELAXATIONS IN THE REGULATORY FRAMEWORK
In order to facilitate origination of housing loans and securitization of mortgage/construction/developer finance, following relaxations in the present regulatory framework are allowed to Banks/DFIs:
Removal of Per-Party Limit:
2. Keeping in view the active role of banks/DFIs for the provision of housing finance to a cross section of the society, the maximum per party limit of Rs.10 million in respect of housing finance, as per Regulation R-15 of the Prudential Regulations for Consumer Financing, is being removed with immediate effect. Accordingly, banks/DFIs are allowed to determine the housing finance limit in accordance with their internal credit policy, credit worthiness and loan repayment capacity of the borrowers. At the same time, while determining the credit worthiness and repayment capacity of the prospective borrower, banks/DFIs shall ensure that the total monthly amortization payments of consumer loans, inclusive of housing loan, should not exceed 50% of the net disposable income of the prospective borrower. Moreover, Banks/DFIs are advised to observe strict compliance to R-16 to R-22 of the Prudential Regulations for Consumer Financing and BPD Circular No.32 of 2004 while undertaking housing finance as part of their Consumer Banking operations.
Facilitating Securitization of Mortgage/Construction/Developer Finance:
3. In order to facilitate securitization of mortgage/construction/developer finance through Special Purpose Vehicle (SPV) in accordance with BPD Circular No.31 dated November 14, 2002, banks/DFIs are allowed the following relaxations with respect to Listed and Unlisted Mortgage /Construction/Developer Finance Asset Backed Securities (ABS):
a. Listed ABS: The minimum credit rating for banks/DFIs to make direct investment and for taking exposure (i.e. undertaking lending and reverse repo) against listed ABS for mortgage/construction/developer finance is reduced from “A” to “A- (or equivalent)”.
b. Unlisted ABS: Banks/DFIs are allowed to invest in non-listed mortgage/construction/developer finance ABS having a minimum credit rating of “A- (or equivalent)” as well as to take exposure (i.e. undertaking lending and reverse repo) against the security of such non-listed ABS. Regulation R-6(1-A)(c) of PRs for Corporate/Commercial Banking is accordingly modified.
4. Please acknowledge receipt.
(MUHAMMAD KAMRAN SHEHZAD)
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