FE Report
The disbursement of loans to construct homes soared in last eight years from 2009 to 2016, but it declined sharply in cases of purchasing flats or apartments, according to a new study report.
The loans for construction out of the total home loans disbursed increased by over 41 per cent to around 66 per cent in 2016 from 25 per cent in 2009. It was around 30 per cent of the total home loan in 2006.
On the other hand, the loans to purchase flats and apartments declined by 33.81 per cent of the total home loans in last eight years to 20.81 per cent in 2016 from 54.62 per cent in 2009. It was 35 per cent in 2006.
The study report titled 'Home Loan of Banks: Trend and Impact' was released at a discussion meeting at Bangladesh Institute of Bank Management (BIBM) auditorium in the capital Thursday.
It was not, however, made clear why the trend had taken a shift from the flat loans to the home construction loans.
The market insiders indicated that the developers might have taken loans to construct the buildings but could not sell the flats or apartments to the clients, who would have created the demand for the loans.
BIBM director Professor Md Mohiuddin Siddique, Associate Professors Md Alamgir and Dr Mohammad Tazul Islam conducted the study based on data from the Bangladesh Bank, International Finance Corporation and the World Bank during a period from 2006 to 2016.
The team studied loan performance of 17 private commercial banks (PCBs), three Islamic banks, one state-owned commercial bank (SOCB), one
foreign commercial bank (FCB) and one specialised bank.  
The total outstanding home loans from banks and financial institutions as of end June 2016 amounted to Tk 562.9 billion, which was 9.1 per cent of total credit to the private sector.
The PCBs hads the highest share of Tk 309.2 billion or 55 per cent of the total outstanding loans while SOCBs Tk 119.3 billion or 21 per cent, specialised housing finance institutions Tk 70 billion or 12 per cent, FCBs Tk 21 billion or 4 per cent.  
The rest Tk 43 billion (8.0 per cent) came from other specialised financial institutions and micro lenders.
The share of Bangladesh House Building Finance Corporation (BHBFC) has not grown much during the study period from 2006 to 2016. They had disbursed only Tk 27.8 billion in 2006, which stood only at Tk 31 billion in 2016.
On the other hand, the PCBs share was Tk 35 billions in 2006 which stood at Tk 309.2 billion in 2016, registering almost nine times higher.
The study found that 64 per cent of the banks fixed their respective interest rates on home loans by negotiating with their clients and differentials in interest rates among the similar category of borrowers have been found in 77 per cent banks.
The rate varied from 8.0 per cent to 15 per cent.
Some 64 per cent banks have no separate wings to deal with the home loan disbursement and recovery though around 73 per cent banks have separate home loan policy.
The mortgage debt to Gross Domestic Product (GDP) in Bangladesh was found just over 3.0 per cent compared to 9.0 per cent in India and 50-70 per cent in the developed countries.
The country's mortgage debt to GDP peaked at 3.51 per cent in 2013 and had since declined to 3.28 per cent in 2014 and 3.23 per cent in 2015.
The share of home loan was only 3.21 per cent in 2006 which peaked to 5.98 per cent in 2011 and then declined to 5.69 per cent in 2016.
The study found home loan in rural areas increased by 12 per cent in last 10 years. The urban-rural home loan ratio improved to 83:17 in 2016 from 95:05 in 2006.
The study observed that the average non-performing loans (NPLs) to home loans were lower than average NPL to total loans.
The overall NPL ratio was 5.45 per cent in 2006 whereas the same for home loan was only 1.57 per cent. The NPL to total loan peaked in 2014 to 8.36 per cent whereas home loan peaked to 4.18 per cent.
The NPL to total loan is now 8.16 per cent whereas NPL to home loan is 3.12 per cent.
Speaking as the chief guest at the programme, BB deputy governor SK Sur Chowdhury said access to affordable housing finance by the low and middle income segment of people would help reduce discrimination among the citizens of a country.
He says residential investment directly stimulates economic growth through the creation of job in the construction related sectors, improves the public health condition and reduces the vulnerability of the people living in the countries which are prone to natural disaster like Bangladesh.
Standard Chartered Bank, Bangladesh chief executive officer Abrar A. Anwar sought central bank's intervention to fix an interest rate for housing loans.   
He urged Bangladesh Bank to allow a debt-equity ratio of 80:20 for home loan to non-resident Bangladeshis so that they show more interest to invest in home in Bangladesh. It would also help boost inward remittance, he added.
He also stressed the need for floating zero-coupon bond for investing in home purpose only.
Shimanto Bank Ltd managing director Muklesur Rahman urged the bankers to be creative and diversified in designing the home loan products.
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Source: The Financial Express