Pakistan State Bank has initiated an incentive and penalty system for banks to promote Mortgage financing in the country.
According to the SBPs statement, the State bank will incentivize banks to meet the targets of mortgage loans and financing for property developers and will also penalize them in case of not meeting the desired targets, the report said.
According to the system introduced by SBP that will come into effect from December 31, banks will find an incentive of maintaining reduced Cash Reserve Requirement (CRR) with SBP, in the next quarter, in case they achieve or exceed the target of financing for housing and construction of buildings set for the quarter.
The amount of CRR to be maintained for the forthcoming quarter will be reduced by an amount equal to an increase in housing and construction finance from June 30, 2020, to the end of the relevant quarter, the central bank said.
This incentive, however, will be subject to a ceiling of 1 per cent of the total demand and time liabilities based on which CRR is calculated. Further, banks will continue to maintain daily minimum CRR, which is currently at 3 per cent.
Similarly, the SBP said, if banks fail to meet the target, they will be penalized by requiring to maintain extra CRR by an amount equal to a shortage from the target. It would be important to mention that banks do not earn any return on the amount of CRR maintained apparently. Hence, a decreased amount of CRR works as an incentive for banks, on the other hand, an increase in CRR amount serves would inflict penalties on banks.