The data collected for analysis and review includes both primary and secondary data .the methods used for collecting primary and secondary data are as follows:
PRIMARY DATA
Data collected for the first time is called primary data. The methods used to collect such data include:
Personal observations
Discussions
Interviews with bank’s employees
SECONDARY DATA
The data collected earlier by some one else and which has gone through mathematical and statistical techniques after its collection, is called secondary data. Methods used to collect secondary data include:
HBL annual reports
Brochures
HBL Manuals
Circular and News letters
Internship reports HBL available in IMS library
Journals and News papers
Internet
1.7 SCHEME OF THE REPORT
The report has been divided into four sections, which are in the following order:
SECTION I
Section i consists chapter1 that includes the background of the study, purpose, scope, limitations, merits, methodology and scheme of the report.
SECTION II
This section of the report includes an overall view of Housing Finance in Pakistan this section is composed of 3 chapters. Chapter 2nd the organizational review Chapter 3 out lines the housing and housing finance in Pakistan. Chapter 4 outlines the housing finance, a case study of Habib Bank Limited
SECTION III
This is the analysis section of the report. This section is focused on the comparison and analysis of housing Finance in Habib Bank Limited and PICIC Commercial bank
SECTION IV
In this section Findings and recommendations are given which are faced by the Pakistanis
CHAPTER 2
ORGANIZATIONAL REVIEW
2.1 MISSION STATEMENT OF HABIB BANK LIMITED
The mission of an organization presents a long-term idea of what that organization is striving to become in the future. The mission includes the basic thrust of the company, including its basic products, business, and markets. The mission provides a starting Point as to how the firm will deal with such issues as technological innovation, product quality, customer service, employee satisfaction and impact on socially responsible conduct.
According to the president of HBL, “our mission is to be recognized as the leading financial institution of Pakistan and a dynamic international bank in the emerging markets, providing our customers with a premium set of innovative products and services, and granting superior value to our stakeholders – shareholders, customers and employees”.
2.2 BRAND AND HISTORY
The Habib Bank Group is a leader in Pakistan's services industry. An extensive network of 1425 domestic branches – the largest in Pakistan – and 55 international branches has enabled HBL to provide comprehensive services that meet customer needs. This has ensured thriving client relationships that form the backbone of the Bank's operations.
Today, HBL plays a central role in Pakistan's financial and economic development. It has come a long way from its modest beginnings in Bombay in 1941 when it commenced operations with a fixed capital of 25,000 rupees. Impressed by its initial performance, Quaid-e-Azam Mohammed Ali Jinnah asked the Bank to move its operations to Karachi after the creation of Pakistan. HBL established itself in the Quaid's city in 1943 and became a symbol of pride and progress for the people of Pakistan.
Habib Bank has been a pioneer in providing innovative banking services. These have included the installation of the first mainframe computer in Pakistan followed by the first ATM and more recently, internet banking facilities in all our 1425 domestic branches.
The Bank's towering presence in Pakistan's financial and commercial life has remained unchanged over the decades. The strength of its brand and image is symbolized by its prominent Head Office building that has dominated Karachi's skyline for 35 years.
We continue to build on our track record and in our quest for excellence we strive to meet the needs of both our customers and our employees. At Habib Bank we aim to ensure customer satisfaction by providing high quality banking services. This is made possible by the professionalism of our employees all of whom are provided with the requisite training and opportunities to enable them to realize their full potential.
2.3 ROLE OF HABIB BANK LIMITED
2.3.1 HBL ROLE IN PUBLIC SECTOR
Habib bank has played and is playing a very important role in public sector. After partition, the commercial banking activity was at its lowest ebb and the country was without a central bank of its own. At such a crucial juncture, Habib Bank in addition to its normal functions of a commercial bank performed the functions of the banker to the state.
Immediately after partition, the first major association of Habib Bank with the government was the sponsoring of Pakistan Finance Corporation Ltd.jointly with the central and provincial government for financing of cotton. Furthermore, the bank not only provided handsomely to their capital but also provided with technical advice.
The bank also associated itself with large-scale projects such as Warsak Dam project, WAPDA. The development authority and KDA by providing finance and other facilities.
2.3.2 HBL ROLE IN PRIVATE SECTOR
Habib Bank was the first to open branches all over Pakistan in order to provide finance and other facilities to the business communities.
During the quarter century of its existence Habib Bank had taken the land in many new areas, which had been introduced for the first time in commercial banking sector in Pakistan. It was the first commercial bank to import the electronic machines that were in use in the leading banks of advanced countries. These machines have made it easier for the bank to cope with its expanding business and fast growing clientele.
Another innovation introduced by Habib Bank is the evening banking services which has come as a relief to business men who contribute to handle cash long after the closing of normal banking hours. The Habib Bank has also been the first in making available new facilities such as gift cheques, rupee traveler’s cheque, credit card system and short-term and long term schemes for small business men.
For the benefit of investors it publishes weekly stock exchange price averages. It also issues a monthly publication by the name of Business News Service. It also brings out a house journey.” we of Habib Bank” supports research data and facilities at its command. Habib Bank is fully geared to monitor the nation economy and play its due role in bringing prosperity to the economy.
2.4 ORGANIZATIONAL STRUCTURE OF HABIB BANK LIMITED
Habib bank is the largest and the oldest bank of Pakistan and operates the largest network of branches in Pakistan. Historically its organization was managed on geographical basis. But many problems were produced with the passage of time and with the growth of branches network such as lack of co-ordination among branches as well as high offices, delay in communications, long time lapses in important decision –making and also the problems of proper monitoring, evaluation, and compensation of the employees. The old structure was such that at the top was Head Office Karachi and in the last were branches.
However, in 1997, organizational changes were made to reposition the bank and overcome the above problems and also to give new smart and corporate shape to the activities of the bank. The organization changed the structure on functional lines. Thus various groups have been created to carry out different services and functions with the bank. Following are the various groups which are created:
- Corporate and Institutional banking group(CIBG)
- Retail Banking group(RBG)
- Asset Remedial Management group(ARM)
- International Operations and overseas banking group
- finance and Audit group
- Credit policy group
Each group is headed by the group executive and they form policies and strategies. Each group executive is very experienced and knowledgeable person in his or her relevant area of specialization
CORPORATE AND INSTITUTIONAL BANKING GROUP
This group operates in order to fetch business form corporate bodies and big customers all over the country. The main function of this group is to provide better services to corporate clients, to keep them in their fold and to avoid plugging of their business to other banks. For this purpose corporate centers have been established in big cities of Pakistan to provide quick and better services to corporate clients.
RETAIL BANKING GROUP
It deals with the common branches of the bank spread all over the country. It fetches greater, but small, deposits to bank and this group’s function is to introduce innovative products and services for the retail banking. Some of these services are Muhafiz rupee, Travelers Cheques and previous year’s Crore Pati Deposit Scheme.
ASSET REMEDIAL MANAGEMENT GROUP
The primary goal of this group is the speedy recovery and resolution of the classified portfolio. The group aims at various litigation, greater mergers and consolidation of closed/sick units and debt equity swaps to fully address the classified portfolio.
INTERNATIONAL OPERATIONS AND OVER SEAS BANKING GROUPS
The overseas operations have been consolidated under international operations groups. It has chalked out country specific revitalization strategies for important franchises. In addition new consumer banking products are being developed at selected locations.
FINANCE AND AUDIT GROUP
This group is independent of the business groups and looks after the financial regulatory and management reporting of the bank. It has also implemented new audit manual to cater to increasing land and sophistication of risks involved.
CREDIT POLICY GROUP
Credit policy group is staffed with industry specialists. They have implemented a new credit policy manual to ensure merit oriented risk management based on internationally proven and successfully banking methodology.
DOMESTIC OPERATIONS OF HBL
CHAPTER 3rd
HOUSING AND HOUSING FINANCE IN PAKISTAN:
3.1 HOUSING
Shelter is one of the basic necessities of life and occupies the biggest portion of any human settlement. Housing ownership promotes social cohesion and citizens’ participation in other development activities. In view of ever-increasing demand for housing and a huge backlog, some innovative methods need to be employed to make a major breakthrough in this area.
The National Housing Policy 2001 is well articulated but its implementation has not been at the desired levels. Except for some positive measures for housing finance by the State Bank, not much progress has been made on other recommendations.
Due to the strong linkage of the housing sector to the economy, the income multiplier is generally very high, and the private and informal sector can play a vital role in national development.
Affordable housing for low-income groups also contributes to poverty alleviation, income redistribution and promotes individual productivity and household savings. In 1998, there were 19.3 million households in Pakistan, with average household size at 6.6 persons and occupancy at 3.3 persons per room. The overall housing stock comprised39 per cent Kucha houses mostly without proper water supply, 40 per cent semi-Pucca houses mostly without planned sanitation or sewerage system, and 21 per cent Pucca houses. As against the current incremental demand for housing estimated at 570,000 units annually, only about 300,000 units are being built annually, mostly in urban areas.
Accordingly, the housing backlog, estimated at 4.3 million units in 1998, has increased to around 6 million units in 2005. The majority of rural housing is Kacha, with minimal water supply and sanitation or drainage services. About half the urban population is living in slums and Katchi Abadis, with inadequate housing and living conditions. The share of housing in the public sector programmes has progressively decreased from 10.9 per cent in the 1960s to 5.9 per cent in 1990s, with limited institutional finance continuing to be a major constraint in housing production and maintenance of old dilapidated housing stock. In addition, more than 80 per cent of the total population cannot afford the financing terms provided by the house Building Finance Corporation and other housing finance institutions. Resultantly, the construction of low-income housing has been much slower than the incremental needs.
3.2 NEED FOR HOUSING
Shelter has been one of the basic necessities of human life. Unfortunately, in the present circumstances, to build the house for poor, lower-middle and middle class is impossible due to inflation of building materials and sky-rocketed prices of the land in Pakistan.
The housing is a major need in Pakistan, both for rural and urban populace, and a hybrid of micro and housing finance can meet the unfulfilled demand of a vast segment of our society.
3.3 DEMANDS FOR HOUSING FINANCE
The demand for housing finance in the country is enormous and there is a huge backlog of housing units in the country. There is dire need to invest in housing-building sector and fetch direct foreign investment in Pakistan. Pakistan faces acute shortage of housing in which almost 85 per cent people do not have their own houses.
Pakistan was facing a backlog of 2.7 million houses and every year 0.5 million new abodes are needed to meet the growing demand of houses. Rs70 billion annual investment is required to construct 0.5 million houses.
All the provinces had been asked to identify 100 acres land for low-cost housing projects to accommodate majority of homeless people. Laws related to housing and land were being amended to remove bottlenecks in launching low-cost housing units in the country, which needed six million houses and each year this demand increased to 0.3 to 0.4 million.
In the present circumstances, incentives announced for construction and housing industry in 2004-2005 budgets, are unlikely to boost the construction and housing activities.
3.4 TARGETS AND FINANCIAL OUTLAY
- An investment of Rs. 950 billion is envisaged in the MTDF for the development of housing, including Rs 920 billion investments by the private sector and Rs. 30 billion in the public sector. The private sector will be involved in construction and improvement of at least 3 million housing units during 2005-10 in urban and rural areas. In addition, the private sector would also undertake area development schemes with necessary infrastructure to provide developed residential plots, and construct about 25,000 houses/flats for the public servants under house ownership schemes, mostly in urban area during next five years.
- The PSDP allocations would be utilized mainly by the Federal and Provincial Governments for undertaking infrastructure development in ongoing housing programmes and new area development schemes for provision of developed residential plots with necessary amenities.
- In addition, the Government would continue constructing public offices and essential accommodation for Government servants and Constabulary Armed Forces. During the first year of MTDF (2005-06), the federal PSDP allocation for housing is earmarked as Rs. 2 billion for housing on ownership basis, Federal Government Employees and construction of office buildings. Whereas, the Provincial Governments are required to allocate Rs. 3 billion during 2005-06 in order to accelerate the house construction activity throughout Pakistan.
3.5 HOUSING FINANCE
Currently there is inadequate housing finance, management capacity, and awareness. Weaknesses in the land titling and land information systems restrict the possibilities of mortgage finance to limited urban areas and are largely responsible for the concentration of lenders to the upper-income groups for whom the property collateralization is not the main risk-mitigating factor.
The lack of a long term fixed rate funding market acts a constraint as it increases the risk for the lenders and restricts the menu of long term mortgage products thus curtailing affordability of the middle and low income groups to buy even a small plot and build house thereon. The main funding from the existing banks for housing loans is derived from their deposit-base, which leads to major financial risks relating to interest rates and liquidity. The interest rate portion is managed by relying on floating rates and keeping fixed rate durations for just a few years. Liquidity risk is currently low due to constraints levied by the State Bank of Pakistan delineating a maximum exposure limit for the banks vis-à-vis the home finance. Until now the main crux of housing mortgagees was towards the floating rate side.
Given the recent run up in rates, the mortgages have been the primary victims, as they have had to pay the cost of rising interest rates in the shape of enhanced monthly mortgage payments. In a fixed rate mortgage, which is funded by short-term liabilities, an increase in interest rate primarily affects the mortgagee financial institution because of re-pricing of liabilities. Thus, it is prudent to develop long term fixed rate funding arrangements for enabling banks to offer fixed rate mortgages. Institutional investors such as Pension Funds and Insurance Companies can afford the alternate long-term investment opportunities such as 15 or 20-year mortgage backed securities. However, banks, especially the large ones with huge pools of funds in the shape of demand and time deposits liabilities, are unwilling to forego the high spread they are earning by financing their long term housing loans through short-term liabilities.
3.6 HOUSING ASSETS AS A PERCENTAGE OF REAL ASSETS.
Table 3.1
3.7 NATIONAL HOUSING POLICY – 2001
The present government appreciating the gravity of situation and realizing the importance of this sector for its potential to generate employment, decided to revitalize it as a vehicle for economic revival. Accordingly, Ministry of Housing and Works formulated a new National Housing Policy – 2001 approved by cabinet on 5-12-2001. The policy addresses all the issues relating to land matters, house finance, construction, services sector, low cost and rural housing, building material and infrastructure development, building and zoning regulation, and institutional framework.
It clearly sketches out the role of Federal govt up to the local government defining the desired roles to be played by governing bodies on each level. The policy also seriously considers the multifarious problems including housing shortage, lack of housing finance, non-existence of foreclosure laws, lack of planning, outdated building and zoning regulations, etc. The major emphasis of the policy is on resource mobilization, land availability, incentives for home ownership, incentives to developers and constructors and promotion of research and development activities to make construction cost effective. The main objective of the policy is to create affordability to owning a housing unit, especially for the middle and low income groups.
For the monitoring and implementation of the policy a number of committees have been constituted and are being regularly convened to ensure implementation and monitoring.
3.8 EFFORTS OF THE GOVERNMENT & S.B.P.
The efforts of the government and the state bank of Pakistan regarding Housing finance are as follows
- Banks’ exposure to housing finance has been enhanced from 5% to 10% of their net advances.
- CED on wires & cables withdrawn.
- CED on cement reduced.
- Bank allowed to deduct 3% of the income arising out of consumer loans for creation of a reserve to off-set bad debts in this segment
- Broadened the scope of Credit Information Bureau at SBP.
- Facilitating CIB in the private sector for consumer loans.
- Per party limit has been raised from Rs. 5 million to Rs. 7.5 million.
- The maximum loan period has been enhanced from 15yrs to 20 yrs.
- Debt equity ratio in housing finance has been improved to 80:20 from
60:40.
- Tax rebate on mark up to Rs. 500,000 (from previous Rs.100, 000/-) or 40% of the income which ever is less for those who construct their houses their loans.
- Maximum limit of HBFC rose to Rs. 5 million.
- Provincial governments are rationalizing stamp duties and registration fee
On transfer and acquisition of housing property.
- The legal framework for the loan recovery of financial institutions has been further streamlined and strengthened through the promulgation of Finance Institutions (Recovery of Finance) Ordinance, 2001.
- Through a more effective macro economic management the government has succeeded in reducing the general interest rates in the country. This will provide an opportunity for banks and other financial institutions to provide more affordable mortgage loans.
- HBFC has been put under a new and professional Board of Directors and management with a mandate to restructure the instruction into a commercially viable and self sustaining entity.
- HBFC shall compete in the market for business and resources at par with private sector institutions. Moreover, the HBFC has been amended to enable it to provide Sharia compliant housing finance product, which has since been introduced.
3.9 BANKS-HOUSING FINANCE
In order to meet the backlog and shortfall of the housing units in the country in the next 20 years, the overall housing production has to be more than 570,000 housing units annually.
IT is refreshing to note that favorable developments at the market place are facilitating origination of housing loans in the primary mortgage market. On the supply side bank are flushed with liquidity due to reduced borrowing from government, de-dollarization of the economy and rising inflows of remittances. Consequently interest rates have reached their lowest ebb. In this scenario banks are looking for alternate lending opportunities and develop asset based consumer products. Housing finance provides an attractive opportunity as both profit margins and recovery rates on average are higher for mortgage
Finance than project and corporate lending. On the demand side marketing efforts by banks are creating awareness amongst general public for early home ownership through housing finance.
The increasing scope of house financing in Pakistan has made many local and foreign banks engaged in house financing activities. The potential of the industry promises sound future of the capital resource.
Housing Loan Portfolio as on September 30, 2003
Table 3.2
ANALYSIS OF HOUSING LOAN PORTFOLIO
Table 3.3
The above figures indicate the following very interesting facts, which need to be evaluated by the policy makers for taking appropriate decision:
-
That out of the total loan 62% market share is with the foreign banks 28% private banks as compared to only 6% with the Nationalized Banks.
-
That the major players in the field are Citibank 43% followed by ABN Amro 18%, Askari 14% & Union Bank 11%. Total 86%.
- That the majority of the loans have been given for outright purchase i.e. 66% followed by loan for construction 18% renovation 17%.
- That average loan per borrower:
Foreign bank/De-nationalized banks Rs.1.50 million
Private Banks Rs.1.29 million
Nationalized Banks Rs.0.30 million
HBFC Rs.0.07 million.
- That the market leader which had an almost monopolist share originally in the Housing Finance is still H.B.F.C. with total disbursement of almost Rs 31.00billion followed by all the banks clubbed together at Rs4.5 billion.
- The figure of Rs. 4.5 billion is a tremendous improvement in the Banking Sector is a recent evolution, which is a consequence of Macro economic Conditions, National Housing Policy 2001 and the measures and steps taken by the State Bank of Pakistan and other Agencies.
As part of this research paper a questionnaire was circulated among the Major layers in the Banking Sector w.r.t. Housing Finance who enjoy an almost 90% of the market share.
3.10 MAIN PRIVATE BANKS IN HOUSING SECTOR
NAME Limit for Loan Equity Time Frame Processing Fee Rate of Interest
Table 3.4
OBSERVATIONS
- Most of the packages/products now being offered by the Banks have started becoming attractive in terms of mark up, pay back period, collaterals etc.
- Monthly salary to qualify for the Housing loan starting from 40,000 to50, 000 as required by the Citibank to figures like, 18,000/- 16,000/- and even as low as 12,000 by Askari Bank or 10,000 by N.B.P.
- Another significant observation from the survey indicates that the loans repayment started from as low as one year up to 20 years of almost all the banks which in previous had not stretched beyond 10/12 years.
- The debt equity loan from 50:50% has now improved to 70:30% and in some cases it even comes to 80:20%.
- The markup rate which has been reduced gradually from as high as 8%/22% to single digits rates of as low as 7% to 9% in some cases.
-
Interest free schemes like “Shandar Ghar Scheme” & “Ghar Aasan Scheme” as been introduced by the H.B.F.C.
- The two major banks when contacted informed that loan to the extent of billions of rupees extended by them as Housing Finance and there has not been a single default case or bad debt.
- Another observation of this survey shows that majority of the loans extended are in Posh localities like D.H.A.s in Karachi, Lahore &Rawalpindi, Cantts, other schemes of the Armed Forces and some portions of K.D.A. and L.D.A/C.D.A.
The beneficiaries mainly are people in the Bank, employees of the multi-national and professionals as well as some self-employed businessmen. It has been informally learnt that the Banks by and large are reluctant to extend loan to the Lawyers and Police officer fearing litigations.
When contacting HBL informed that they are coming up with a major product in the house Finance which shall cover all the segments of the society and would be broad based covering the entire country instead of major cities and towns.
The security/collateral/mortgage is comprehensively covered by the Banks to ensure repayment of the installments.
The banks listed above, are mainly new comers in this field competing the giant HBFC, which remained a monopolist for more than 50 years. HBFC still have a phenomenal share in this sector.
3.11 HBFC-PROGRESS AND PERFORMANCE
Since its inception the Corporation has approved loan/investment to the tune of Rs. 32567.195 million for over 423051 housing units and disbursed an amount of over Rs.30005.522 million to over 400,000 borrowers. Operating through a network of over 58 offices through out the country HBFC has also extended loans to projects amounting Rs. 1759 million. It has invested in multistoried flats since 1967.
The latest introduction of the non interest bearing new schemes of Shandaar Ghar Scheme (Murabaha)-2001 & Ghar Aasaan Scheme (Musharakah)-2002 which are shariah compliant have attracted attention.
It provides financial assistance for the construction and purchase of house, development of land, also for repair and re-construction. Development of land and also for undertaking construction of housing projects for sale to public.
On the directions of the Government HBFC has also disbursed amounts as relief and rehabilitation to the extent of Rs. 714 million. In addition an amount of Rs. 1229 million also sanctioned as remission to widows, orphans and retired government employees.
3.12 AWARENESS OF THE HOUSING FINANCE SCHEMES
The above exercise was conducted in respect to the Institutions involved in extending house Finance. Now this exercise is undertaken to find out the knowledge and general perception of H-F amidst potential borrowers. The survey has produced some very meaningful results. The restricted parameters of the survey are that the target group selected was:-
(a) Mostly educated
(b) Bread earners of the family
(c) 92% male
(d) More than 90% above age of 40
With these parameters, the survey needs to be understood and results are:
OWN HOUSE 64% do not own their own house
DEPENDENDENTS: 60% have 2-4 + 24% 5-6 + 16% >6
RENTAL PAYMENTS: 56% pay approx Rs. 10,000/-
24% pay approx Rs. 15,000/-
20% pay approx Rs. 20,000/-
SOURCES:
70% have purchased their own house.
30% have been gifted or inherited.
AWARENESS:
65% do not know about the various H-F schemes
35% knew of it.
BEEN TO A BANK:
92% have not been to a bank for this.
PERCEPTION OF PACKAGES:
80% felt that the packages offered by the various Financial Institutions are neither convenient nor affordable.
MARKUP RATE:
72% did not know of the present markup charged
CONVENIENT
92% responded by saying that they would prefer
PACKAGE:
package/product of housing finance which is conveniently obtained is economical and can stretch for a longer period of time.
Majority of the people who are even educated and aware of the current affairs situations are not aware about the various Housing Schemes being offered by the Bank.
That the majority of the people have a general perception that the packages being offered are not convenient to obtain and un-economical. That they perceive the on going rates charged by the Banks as very exorbitant.
3.13 PRUDENTIAL REGULATIONS FOR HOUSING FINANCE
REGULATION R-15 The maximum per party limit in respect of housing finance by the banks / DFIs will be Rs 10 million.
REGULATION R-16 The housing finance facility shall be provided at a maximum debt-equity ratio of
85:15.
REGULATION R-17 Banks / DFIs shall ensure that at no time their total exposure under house financing exceeds 10% of their net advances.
REGULATION R-18 Banks / DFIs are free to extend mortgage loans for housing, for a period not exceeding twenty years. Banks / DFIs should be mindful of adequate asset liability matching.
REGULATION R-19 The house financed by the bank / DFI shall be mortgaged in bank’s / DFI’s favour
by way of equitable or registered mortgage.
REGULATION R-20 Banks / DFIs shall either engage professional expertise or arrange sufficient training for their concerned officials to evaluate the property, assess the genuineness and integrity of the title documents, etc.
REGULATION R-21 The bank’s / DFI’s management should put in place a mechanism to monitor conditions in the real estate market (or other product market) at least on quarterly basis to ensure that its policies are aligned to current market conditions.
REGULATION R-22 Banks / DFIs are encouraged to develop floating rate products for extending housing finance, thereby managing interest rate risk to avoid its adverse effects. Banks / DFIs are also encouraged to develop in-house system to stress test their housing portfolio against adverse movements in interest rates as also maturity mismatches.
CHAPTER 4
HOUSING FINANCE A CASE STUDY OF HABIB BANK LIMITED
4.1 INTRODUCTION
Financing for the purpose of Housing on mark-up basis is done under Buy-Back agreement,i.e.Bank purchases the existing or under-construction house/flat from the borrower against the finance amount and simultaneously sells the same to him on marked-up price on deffered payment basis. The maximum limit is Rs.5.000M
Disbursement may be made in lump sum (for purchase of house/flat) or in installments (for construction).
4.2 ADMISSIBILITY
The facility of Housing Finance is allowed to an individual (or in joint name) only once in life time adjustable in a maximum period of 10 years on monthly basis. Grace period not exceeding 12 months may be allowed in case of construction while in case of outright purchase no grace period is allowed.
4.3 REQUIREMENTS
The applicant must have the following
4.31 FOR CONSTRUCTION OF A HOUSE
- Legal title over the plot of land
- Le gal opinion on the title of the plot of land
- Permission for construction from the concerned authority.
- Approved site plan
- A valuation certificate from Bank’s approved architect indicating the cost of land and cost of construction
- Evidence of his resources to invest his contribution for the construction
- Evidence of his capacity to make payment of installments on monthly basis.
The bank’s Finance should not exceed 60% of the total cost of construction and cost of land up to the maximum limit of finance fixes from time to time.
4.3.2 FOR PURCHASE OF HOUSE/FLAT
The title of the property to be purchased from the seller should be defect free and should be un-encumbered. Other documents/papers should be obtained according to the requirements depending on the nature of property, i.e. House/flat
The branch forwards the proposal for sanction of the limit on the prescribed format to the sanctioning authority if it exceeds the powers of the manager/chief manager.
The limit will be sanctioned as per guidelines provided in the credit policy manual.
4.4 PRECAUTIONS BEFORE FINANCING
Legal opinion of banks legal counsel will be obtained on the title of the property purchased/to be purchased before the case is considered for sanction. If the legal counsel/sanctioning authority has spelt out certain requirements, the same should first be complied with before disbursement of the finance.
4.5 INSURANCE
The Housing unit shall be insured for the marked-up price covering the risks of fire, flood, earth quake etc.
4.6 DOCUMENTATION
Zero defect documentation should be made as per laid down procedure/sanction advice.
4.7 DISBURSEMENT
For disbursement of the finance the following entries will be passed:
Dr. Housing Finance A/c Mr.…………..
Cr. Party’s CD/PLS SBA/c Mr.……………..
The same set of entries will be passed for disbursement of the 2nd and 3rd installments etc
On the day when the Finance/first installment of Finance is disbursed the following entries will also be passed
Dr. O/A mark-up receivable A/c Mr.…………
Cr. O/L mark-up Accruable A/c Mr.…………….
Entries in the ledger A/Cs will be made whether maintained manually or computerized.
For construction of a house the disbursement is made in installments, which is clearly indicated in the sanction advice. Generally it is given as under:
- So much amount(or %) after construction of the foundation
- So much amount(or %) after construction of walls up to roof level
- So much amount(or %) after casting of the roof
- So much amount(or %) after plastering of the Housing Unit
Each installment will be disbursed after inspection of the site by an authorized officer of the branch on submission of his satisfactory report in writing, which is to be kept on record.
In case of outright purchase the borrower will deposit his share of contribution in his CD/PLS SB A/C and the following entries will be passed:
Dr. Housing Finance A/c Mr.………………..
Cr. CD/PLS SB A/C of Mr.………………
Dr. CD/PLS SB A/C of Mr. ………………….
Cr P.O.P.S. Issued A/C……………….
Cr .I/A commission on DD TT MT (commission on PO)
Pay order will be issued in favour of the house/flat for the final amount payable to him and the same will be handed over to the borrower for the delivery to the seller in the presence of the registered of the registrar of properties.
Other formalities like creation of mortgage receipt of completion certificate etc. may be done in due course.
All costs and expanses for valuation of the house/flat registration, mortgage, insurance, and redemption shall be borne by the applicant /borrower.
The primary security for the bank shall be mortgage of the finance consuming property.
4.8 CALCULATION OF MARKED-UP PRICE/MONTHLY INSTALMENT
Marked up price is calculated as follows
Marked up price = principal amount + cushion period mark-up + transactional period mark-up
4.9 PROVISIONAL INCOME
For the purpose of reporting the provisional income, average mark-up recoverable per day shall be calculated and noted in the diary, for each housing finance and this amount shall be multiplied by the remaining number of days up to the end of a particular month for which the mark-up has not been recovered .the resultant figure will be the amount of provisional income (to be reported)
- For the finance without grace period, the following formula will be applied:
Total Mark-up for the transaction period = Average Mark-up per day
Total No. of days in the transaction period
- For the finance with grace period, the following formula will be applied:
Total Mark-up for the transaction period +Mark-up for the grace period
Total No. of days in the transaction period + No. of days in the grace period
=Average Mark-up per day
4.10 INDIVIDUALS NOT MAINTAINING SALARY ACCOUNT WITH HBL
4.10.1 ELIGIBILITY CRITERIA
NATIONALITY
Pakistani (resident)
PROFESSION
Salaried –Regular Employee with total 1 year work experience and 6 months incurrent employment. Maximum tenure to be considered for contractual employees based on at least 2 years total service and maximum 55 years of age at the time of maturity of facility. Only middle and top management contractual employees to be considered .Third party contract employees are not eligible .Minimum net salary for contract employees .Rs.50,000/- self employed. Business persons-at least two years.
AGE
Salaried: 21-60 (60 at maturity of facility)
Self employed, business persons: 21-65 (65 at maturity of facility)
4.10.2 AMOUNT OF FINANCE
OUT RIGHT PURCHASE
Amount of finance for the out right purchase is Rs.0.3M-Rs.15.0mn
IMPROVEMENT/RENOVATION
Amount of finance for the improvement/renovation is Rs.0.3M-Rs.5.0M
SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
Amount of finance for the self construction is Rs.0.3M-Rs.15.0mn
4.10.3 TENURE
OUT RIGHT PURCHASE
Tenure of outright purchase is 3-20 years
SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
Tenure of self construction is Grace period of 12 months
4.10.4 GROUP LIFE INSURANCE
Optional for applicants up to 50 years of age at inception, up to bank’s exposure. Mandatory for applicants above 50 years of age at inception, up to bank’s exposure
4.10.5 PROPERTY INSURANCE
Mandatory up to bank’s exposure
4.10.6 SECURITY
Equitable/Token legal/Registered (as advised by legal advisors)
4.10.7 DEBT TO EQUITY RATIO (DER)
OUT RIGHT PURCHASE
Debt to equity ratio for out-right purchase is 85:15
80:20for contract employees.
IMPROVEMENT/RENOVATION
Debt to equity ratio for improvement is 70:30
SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
Debt to equity ratio for self construction is 85:15
80:20for contract employees.
4.10.8 DEBT SERVICING RATIO (DSR)
50% (Total monthly amortization payments of all consumer loans from various financial institutions inclusive of installment of House finance facility applied for must not exceed 50% of net monthly income).
4.10.9 PRICING OPTIONS
OUT RIGHT PURCHASE
Pricing options for out right purchase is 1 year floating and 3 years fixed.
IMPROVEMENT/RENOVATION
For improvement renovation it is 5 years fixed.
SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
For self construction it is 10 years fixed.
(1 year and 3 years rate to be linked with KIBOR (Karachi Inter Bank Offered Rates) and 5 and 10 years rates to be linked with PIBs-spreads to be decided by the business group.
4.10.10 PROPERTY LEASE
It must have at least 5 years, remaining at the time of maturity of facility.
4.10.11 PROPERTY LOCATION
It must be located in the approved areas.
4.10.12 DISBURSEMENT
Disbursement for outright purchase and improvement/renovation is single upon approval. Where as in self construction there are three trenches. They may differ from case to case.
1st upon approval for construction till plinth level
2nd for construction from plinth till roof level.
3rd for finishing.
4.10.13 INSTALLMENT DUE DATE
5th of following month if disbursal between 1st and 15th of the current month and 5th of the month after following month if disbursal between 16th and 31st of current month.
4.10.14 DOCUMENTS REQUIRED
SALARIED
NIC old or new
NADRA Receipt if new NIC not available
One photograph
Letter from Employer
1 latest salary slip or salary certificate indicating gross and net package be acceptable. In case of absence of latest salary slip, one salary slip of within past three months may be accepted along with 6 months bank statement evidencing credit of salary to data.
Latest 6 months bank statement
Property documents (required at the time of submission of application in case of renovation/self construction only)
SELF-EMPLOYED/ BUSINESS PERSONS
NIC old or
NIC new
NADRA Receipt if new NIC not available
One photograph
PROPRIETORSHIP:
Bank certificate/ latest Tax Assessment order
PARTNERSHIP:
Partnership Deed
DIRECTOR:
Memorandum and Articles of Association and registered form 29/ A
Latest 12 months bank statement
Property Documents (required at the time of submission of application in case of renovation / self construction only)
4.10.15 PROPERTY RELATED DOCUMENTS
Copies of all available documents required. Actual list of documents to be communicated by lawyer.
4.10.16 AGE OF PROPERTY
40 years at maturity of facility (In case of older property, financing not to exceed 70% of appraised value or value of plot, which ever is lower).
4.10.17 MODE OF REPAYMENT
Direct Debit Authority or post Dated Cheques
4.10.18 CO BORROWER
All first kin’s (i.e. brother, sister, daughter, son, mother, father) for property ownership and spouse for clubbing of income and/ or property ownership.
4.10.19 CHARGES
MARK UP
1 year: 8.5%
3year: 9.25%
5year: 10%
10year: 13%
For “zero” early settlement charges, add 50 basis points to markup for each pricing period.
PROCESSING CHARGES
Rs.5, 000/-
EARLY SETTLEMENT CHARGES
1-3 years
4%
More than 3 years
3%
NIL in case of + 50 basis point in mark up
PARTIAL PAYMENT CHARGES
2% (min payment Rs.100, 000/-)
LATE PAYMENT CHARGES
Rs.200/-flat
CHECQUE RETURN CHARGES
Rs.200/-flat
LEGAL / LAWYER CHARGES
Rs.3, 000/-
VALUATION CHARGES
Rs.2, 500/-
INCOME ESTIMATION CHARGES
Rs.3, 000/-
DOCUMENTATION
Actual
INSURANCE
As per applicable insurance policy.
4.11 INDIVIDUALS MAINTAINING SALARY ACCOUNT WITH HBL
4.11.1 ELIGIBILITY CRITERIA
NATIONALITY
Pakistani (resident)
Credit of salary (maintenance of salary account with HbL) for at least 6 months in case of regular employment and 12 months in case of contractual employment.
Regular employee at current employment
Maximum tenure to be considered for contractual employees based on at least 1 year total service and maximum 55 years of age at the time of maturity of facility. Only middle and top management contractual employees to be considered.
Third party contract employees are not eligible.
AGE
21-60(60 at maturity of facility)
4.11.2 AMOUNT OF FINANCE
OUTRIGHT PURCHASE
For out right purchase the amount of finance is Rs.0.3M to Rs.15.0mn
IMPROVEMENT/RENOVATION
For improvement the amount of finance is Rs.0.3M to Rs.5.0M
SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
For self construction the amount of finance is Rs.0.3M to Rs.15.0mn.
4.11.3 TENURE
Tenure of outright purchase is 3-20 years
- SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
Tenure of self construction is Grace period of 12 months
4.11.4 GROUP LIFE INSURANCE
Optional for applicants up to 50 years of age at inception, up to bank’s exposure. Mandatory for applicants above 50 years of age at inception, up to bank’s exposure
4.11.5 PROPERTY INSURANCE
Mandatory up to bank’s exposure
4.11.6 SECURITY
Equitable/Token legal/Registered (as advised by legal advisors)
4.11.7 DEBT TO EQUITY RATIO (DER)
Debt to equity ratio for out-right purchase is 85:15
80:20for contract employees.
Debt to equity ratio for improvement is 70:30
-
SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
Debt to equity ratio for self construction is 85:15
80:20for contract employees.
4.11.8 DEBT SERVICING RATIO (DSR)
50% (Total monthly amortization payments of all consumer loans from various financial institutions inclusive of installment of House finance facility applied for must not exceed 50% of net monthly income).
4.11.9 PRICING OPTIONS
Pricing options for out right purchase is 1 year floating and 3 years fixed.
For improvement renovation it is 5 years fixed.
- SELF CONSTRUCTION (ALREADY OWNED RESIDENTAL PLOT)
For self construction it is 10 years fixed.
4.11.10 PROPERTY LEASE
It must have at least 5 years, remaining at the time of maturity of facility.
4.11.11 PROPERTY LOCATION
It must be located in the approved areas.
4.11.12 DISBURSEMENT
Disbursement for outright purchase and improvement/renovation is single upon approval. Where as in self construction there are three trenches. They may differ from case to case.
-
1st upon approval for construction till plinth level
-
2nd for construction from plinth till roof level.
-
3rd for finishing.
4.11.13 INSTALLMENT DUE DATE
5th of following month if disbursal between 1st and 15th of the current month and 5th of the month after following month if disbursal between 16th and 31st of current month
4.11.14 DOCUMENTS REQUIRED
- Complete loan application of relevant product
- CNIC
- 1 latest salary slip or salary certificate clearly indicating gross and net package be acceptable
- Letter from Employer
- Property documents (required at the time of submission of application incase of renovation/self construction only.
4.11.15 PROPERTY RELATED DOCCUMENTS
Copies of all available documents required. Actual list of documents to be communicated by lawyer.
4.11.16 AGE OF PROPERTY
40 years at maturity of facility (In case of older property, financing not to exceed 70% of appraised value or value of plot, which ever is lower).
4.11.17 MODE OF REPAYMENT
Direct Debit Authority
4.11.18 CO BORROWER
All first kin’s (i.e. brother, sister, daughter, son, mother, father) for property ownership and spouse for clubbing of income and/ or property ownership.
4.11.19 CHARGES
MARK UP
1 year: 8.5%
3year: 9.25%
5year: 10%
10year: 13%
PROCESSING CHARGES
Rs.5, 000/-
EARLY SETTLEMENT CHARGES
Nil
PARTIAL PAYMENT CHARGES
2 %( min payment Rs.100, 000/-)
LATE PAYMENT CHARGES
Rs.200/-
CHEQUE RETURN CHARGES
Rs.200/-
LEGAL/LAWYER CHARGES
Rs.3, 000/-
VALUATION CHARGES
Rs.2, 500/-
INCOME ESTIMATION CHARGES
Rs.3, 000/-
DOCUMENTATION CHARGES
Actual
INSURANCE
As per applicable insurance policy
CHAPTER 5
COMPARSION AND ANALYSIS OF HOUSING FINANCE OF HABIB BANK LIMITED WITH PICIC COMMERICAL BANK
HBL is one of Pakistan's premier banks in terms of deposits and advances with a huge domestic and international network
Habib Bank brings to you the most affordable and convenient scheme to finance your own house. Habib Bank – House Finance, a demand / running finance facility to assist you in turning your vision into a reality. With adaptable options, varying amounts and flexible tenures you can start shifting to, building or renovating your own house in a matter of weeks
PICIC is a pioneer development finance institution and has played a pivotal role in industrialization of Pakistan. As a strong and vibrant financial institution, since its inception, it has closely identified itself with national causes and exudes this sprit, in each of its endeavors. So far it has financed over 1300 industrial projects throughout Pakistan with gross financial assistance of Rs. 38.5 billion. PICIC offers a rich suite of financial products proving it to be a "Truly Financial Super Market" for its customers.
After the start of housing finance in April 2004, the PICIC had so far approved housing finance to the tune of Rs1 billion, adding another Rs1 billion target had been set for the period till December 2005.
In the following pages we will compare the housing finance of Habib Bank Limited with PICIC commercial bank on the basis of the following points.
5.1 SCHEME OF HOUSING FINANCE
Every bank in Pakistan has its own procedure of housing finance scheme but we’ll consider only with the procedure of house financing scheme of Habib Bank and PICIC commercial bank which is as follows
COMPARSION
TABLE 5.1
ANALYSIS
In micro finance schemes, the housing finance scheme of Habib bank limited is one of the attractive schemes of the bank. The loan is granted in the approved areas for the following purposes:
- Construction of a house on a plot in residential area,
- Renovation of a house, already constructed, and
- Purchase of a new house
It is important to note here that PICIC too grants the housing finance facility to its customers but the lenient terms and conditions of HBL attract more customers to avail this facility of the bank.
5.2 ELIGIBILITY CRITERIA
Eligibility criteria means somebody who is eligible to apply housing finance
Application for Housing Finance may be accepted from salaried or self employed persons subject to completion of certain conditions given below
COMPARSION
TABLE 5.2
ANALYSIS
For Habib Bank Limited the eligible applicant must be a Pakistani resident. in case of a salaried person the age required is 21-60years(60 at maturity of facility).while for self employed and business men it is between 21-65(65 at maturity of facility).The minimum net salary for contract employees is Rs.50,000/ per annum. For business men at least 2 years of experience in the relevant field is required. For PICIC Commercial bank the applicant must be Pakistani resident or overseas citizen of Pakistan. The age of salaried or self-employed person required by the bank is between 25-50 years (age should not exceed 60 at the time of maturity of loan) with a monthly salary income is Rs.20, 000/-for Business men at least 3 years of work experience is sufficient.
A comparative study of both the HBL and PICIC, shows that the customers particularly the junior employees prefer HBL because the salaried person whose age is between 21-60 is eligible to apply for housing finance, where in case of PICIC as mentioned above, this age is between 25-50 years. With HBL for business men at least 2 years of work experience is required where in case of PICIC as mentioned above, the required work experience is at least 3 years.
The above data, we take to the conclusion, that leniency of 3 years in age and 1 year in experience with Habib Bank, makes the scheme accessible to many Pakistanis as compared to the PICIC.Eligibility of the overseas Pakistanis for the said scheme with PICIC, expands the scope of the scheme to Pakistanis, who are living in abroad. This is indeed, an attractive aspect of the scheme with PICIC as compared to HBL. In my views, it is in the interest of HBL to extend the eligibility of the scheme to over seas Pakistanis as well.
5.3 MARK UP RATES
A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve policies.
COMPARSION
TABLE 5.3
GRAPH
ANALYSIS
As we indicated in table 3.3,the interest charged by Habib Bank Limited is 11.5%.On the other hand the interest charged at PICIC is 13.5%.which is high by 2%flow the HBL.This decreased interest rate attract our credit market from growing in a market where our competitors like PICIC are offering a very high rate. the lower interest rate not only increases their customers but also has a positive affect on their good will as a cheaper scheme.
5.4 MAXIMUM FINANCE LIMIT
The maximum finance limit of housing finance incase of Habib Bank Ltd and PICIC commercial bank are as under
COMPARSION
TABLE 5.4
ANALYSIS
The Habib Bank Limited provides maximum financing up to Rs.7 million where as the PICIC commercial bank gives maximum of Rs. 7.5 million, keeping in view that the monthly installment of a customer does not exceed than 33% of his/her net income.
So in order to increase just a half million to the maximum amount, of HBL could attract many customers to its scheme of housing finance.
5.5 MINIMUM FINANCE LIMIT
The minimum finance limit of housing finance incase of Habib Bank Ltd and PICIC commercial bank are as under
COMPARSION
TABLE 5.5
ANALYSIS
The minimum finance limit of housing finance incase of Habib Bank Ltd is Rs. 5 lacs, while the PICIC commercial bank is Rs. 2 lacs,in this case it is understood that the low-income customers would be attracted by the PICIC. While the customers with reasonable income would prefer HBL
5.6 DOCUMENTS REQUIRED
The following documents are required to apply housing finance in Habib bank limited and PICIC commercial bank.
COMPARSION
TABLE 5.6
ANALYSIS
The documents which are required by Habib Bank Limited from a salaried person include NIC old or NIC new, NADRA receipt if new NIC is not yet issued, letter from employer, latest salary slip, bank statement of the last six months and property documents. For self employed or business men NIC old or NIC new, NADRA receipt and one photograph. If the business is proprietorship the bank certificate are to be attached with the application. In case of partnership, partnership deed and in case of corporation memorandum and articles of association, registered form29/A, bank statement of the last 12 months and property documents are required. On the other hand the documents required by PICIC commercial bank includes two signed passport-size photographs of the Applicant, two copies of National Identity Card, copy of Property Documents (3 Sets),copies of last bills paid for Electricity /Gas / Telephone, copy of Life Insurance Policy, copy of last year‘s bank statement of all bank accounts, basic Fact Sheet etc
Less and easily presentable documentation of HBL bears great attraction for customers.
5.7 TENURE OF LOAN
The tenure of loan of Habib Bank and PICIC commercial bank are as follows
COMPARSION
TABLE 5.7
ANALYSIS
With Habib Bank Limited the tenure of loan for Housing Finance is 3-20 years. Where in case of PICIC commercial bank it is 2-20 years. In this case the customers definitely would prefer HBL because of its long term holding period. It bears positive effect on the financial managerial skills of HBL.
5.8 SECURITY
For the purpose of housing finance, Habib Bank Limited and PICIC commercial bank required the following securities
COMPARSION
TABLE 5.8
ANALYSIS
Both Habib Bank Limited and PICIC Commercial Bank require some securities for Housing Finance .The security required by Habib Bank are Token legal/Equitable/Registered. The PICIC Commercial Bank other than these securities also required personal guarantees and references whenever necessary. As the PICIC bank requires more securities than HBL, so the customers will prefer HBL. It also creates positive affect on their good will as an easier scheme.
5.9 VALUATION CHARGES
Valuation charges means “the act of determining the value or price of something, especially property”. The comparison between the valuation charges of HBL and PICIC are as follows
COMPARSION
TABLE 5.9
ANALYSIS
It is important to note here that the valuation charges for HBL and PICIC both is one and the same i.e., Rs.2500/-and this factor makes no difference at all for the customers.
5.10 LEGAL CHARGES
A 'legal charge' is when we will use the property as security against a debt. It protects our money, if a funded organization winds up. A legal charge means that we would be the first organization to be repaid if a funded organization goes into liquidation.
COMPARSION
TABLE 5.10
ANALYSIS
The legal charges on housing finance incase of Habib Bank is Rs 3000/-where incase of PICIC commercial bank they classify legal charges on the basis of their amount i.e., the amount less than Rs 3million the legal charges will be Rs.3000 and the amount below 5 million it will be Rs.5000 and the amount above Rs.5 million it will be Rs 8000/-
As the legal charges of housing finance incase of HBL is less than PICIC Commercial Bank so the customers will give preference to HBL because of less legal charges and a simpler scheme as compare to PICIC which is more complicated. The less legal charges also positively affect their good will.
5.11 PROCESSING CHARGES
The processing charges are as follows.
COMPARSION
TABLE 5.11
ANALYSIS
The processing charges of housing finance in Habib Bank Limited is Rs.5000- as compare to PICIC commercial bank which is Rs.10,00/-in case of PICIC if the application is not approved so they refund Rs.2500. While with Habib Bank there is no such practice.
There is a big difference in the application process fee, charged both by HBL and PICIC. Those customers who are aware of the process fees of both HBL and PICIC would definitely turn towards HBL.
5.12 DOWN PAYMENTS
Traditionally, the biggest obstacle to buying a home with mortgage financing is obtaining the down payment funds. In the past, mortgage lenders required at least 20% down. Today, Government Insurance programs and Private Mortgage Insurance make low down payments possible. In some instances, local and state agencies will provide down payment assistance in the form of a loan or grant.
COMPARSION
TABLE 5.12
ANALYSIS
In case of HBL for the purchase of pre-constructed house 15% of the price of the property shall be paid by the borrower from their own resources and 85% will be paid by the bank. But in PICIC commercial bank for the purchase of pre-constructed house 30% of the price of the property shall be paid by the borrower and 70% will be paid by the bank. As HBL requires minimum down payments so the customers will definitely prefer HBL. It also bears positive effect on their good will.
CHAPTER 6
SWOT ANALYSIS
SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities and Threats.SWOT analysis is a careful evaluation of an organization’s internal strengths in weaknesses as well as its environmental opportunities and threats. In SWOT analysis the best strategies accomplish in organization’s mission by (1) exploiting in organizations of opportunities in strengths
STRENGTHS
A skill or capability that enables an organization to conceive and implement its strategies.
- Habib Bank Limited charges lower mark-up rates on housing finance as compare to PICIC Commercial bank
- In Habib Bank Limited less documents are required to apply for housing finance
- In housing finance of Habib Bank Limited less securities are required as compare to PICIC bank
- Habib Bank Limited requires minimum amount of legal charges
- Habib Bank Limited offer long tenure of loans of housing finance as compared to PICIC bank
- HBL requires fewer down payments.
- In Habib Bank Limited the process for housing finance is simple for general public as compare to PICIC
WEAKNESSES
A skill incapability that doesn’t enable an organization to choose and implement strategies that support its mission.
- The maximum amount under the housing finance scheme of Habib Bank Limited, is less than PICIC and other commercial banks
- In Habib Bank Limited only Pakistani citizens who reside in the country are eligible to apply for housing finance where as in PICIC both the Pakistani residents as well as the overseas Pakistani’s are also eligible to avail the said scheme
- The minimum amount under the housing finance scheme of Habib Bank Limited is more than PICIC and other commercial banks so the low income customers will prefer PICIC.
OPPORTUNITIES
In area in environment that, if exploited may generate high performance.
- To attract more customers, HBL should increase the maximum amount of housing finance scheme
- Habib Bank Limited should utilize fully the current National Housing Policy 2001, of the Government of Pakistan, which in my assessment is in the interest of both the bank and its customers
- Evolving a class based housing finance scheme could create enormous opportunities could have to prove itself a leader in this sector of the market
- The rapid growth in the population of Pakistan and the government policies for providing shelter to shelter less citizens and low paid government servants, offer great opportunities to HBL provided its housing finance scheme is in the frame work of the government and in the affordability of the people.
THREATS
An area in the environment that increases the difficulties the organization’s achieving high performance
- Emerging of new bank and commercial enterprises
- A gap between the policy of housing finance scheme of the government of Pakistan and the practice of the bank
- “Handi” the process through which overseas Pakistani’s sends their money not through the bank but through their agents.
From the SWOT analysis we can conclude that the management of the bank should adopt systematic planning in housing finance for the bank growth, introduced new schemes in housing sector. HBL has more customers as compare to other banks, if they given proper attention to every customer than in few years it will be the leading bank of the country.
FINDINGS
It is worldwide recognized fact that the housing/construction industry of a country plays a vital and significant role in the development of its economy and prosperity.
- In Pakistan 92% requirements of the total housing needs is provided by private sector. Almost 2.7million housing units are required to meet the current need of the country.
-
If an average allocation for the construction of a hosing unit is made Rupees five lacs (a very conservative estimate); with 50 percent self-financing ratio, then the total demand for housing finance will become close to Rs. 68 billion against the current allocation which is close to Rs.3-4 billion. Thus there is a great scope for a quantum jump in the housing finance business.
- Broadly speaking a rapid growth in housing business as a result of better financial inputs will accrue significant benefits to the economy in the form of employment opportunities, support to a variety of sectors, a higher economic growth and fulfillment of an important social need.
- Housing and construction industry has the potential of absorbing large number of skilled and un-skilled workforce and therefore the revival of this sector will also help reduce poverty in the country.
- In the housing and construction industry, 72 other big and small allied industries are directly associated and connected e.g. paint, steel, cement, hardware, glass, wood, plastic and so on. Promoting Housing Finance shall result in the revival of these industries and economy as well.
- The cost of construction has raised year to year basis. Cement from Rs. 160/- to Rs. 240/- per bag. Steel from Rs. 14000/- p.m.t. to Rs. 32,000/- The Govt. of Pakistan has no doubt relaxed the price hike and reduced the excise duty by 25% in order to curtail the cost of cement, but this benefit was not extended to the end users due to ‘Cartel’ formed by Cement manufacturers. Without providing basic utilities, housing industry could not flourish, as water, electricity, gas and sewerage are necessary for any housing project.
- due to lack of long term planning and co-ordination between various departments involved in this process, basic amenities are not being provided as such it is on of the main hurdle in the development of this important sector.
- Housing Finance has to go hand in hand with other inputs like building material and infrastructure to boost this industry. An outstanding achievement of the government during the last four years has been the formulation of the National Housing Policy and the measures taken to implement it.
- The objective of the Housing policy is to create affordability of owning a housing unit, especially of the middle and low-income groups in urban as well as rural areas. There are number of other sectors that have direct forward and backward linkages with the housing/ construction sector. According to an officials estimate, if seen in the context of all its linkages, its real impact on the total GDP cold be as high as 15 to 20 percent. Now there is a better enabling environment for organizing housing loans by banks in the primary mortgage market.
The significance of housing finance is now accepted as an important tool for economic development. The major emphasis of the policy is provision of affordable housing finance.
RECOMMENDATIONS
On the basis of above analysis the possible recommendations are as follows
- The worst form of national castrophy, which we experienced on October 8 2005, which destroyed Balakot, Azad Kashmir and the adjoining areas, has unveiled the reality that instead of making traditional houses, we should construct earthquake-resist buildings.
- Housing Finance should be not being restricted to few major cities like Karachi, Lahore, Peshawar and Rawalpindi. Few localities like DHAs, Army Schemes, Cantts, LDA and CDA. Selected borrowers like Bank employees, multinational reps, Business class personnel. It should be broad based in all respect.
- The National Housing Authority should make immediately segment wise task force i.e. Financial, Utility, Legal, Builder and Housing Societies to ensure proper and timely implementation of its NHP-2001.
- There should be either fixed rates instead of floating rates or some cap into the floaters.
- Housing finance market should be broad based rather than concentrated in a few pre-selected specialized institutions. The demand for housing finance in Pakistan is too large to be met by a few institutions.
- There is a need to improve significantly the enabling environment i.e. the property market, the property registration and retrieval system, legal and judicial system and the real estate market.
- The benefit of the reduction of excise duty on cement should be passed on to the consumers. The government should initiate action to break the cartel of the cement manufacturers.
- Lands and utilities providing agencies should williningly and actively participate in this cause otherwise no matter how lucrative the Housing Finance package offered by banks will die sooner or later.
- Loans should be provided by banks to developers of residential and commercial projects based on their reputation, good will and feasibility. That is a “Developer Finance System”
- Funds lying with SBP to the tune of US$15 million or Rs. 900 million under this head since 1994. This amount should be disbursed to the banks at reduced rates.
- Rent control laws need immediate revision to protect homeowners and cases is disposed off in a fixed time frame.
- Title of documents of property should be computerized and made available on demand in the shortest possible time. Single digit loans are ensured.
- Group funding without collateral should be generated for the very poor.
-
Foreclosure laws should be implemented without recourse to courts within 90 days. Short-listing, registration, monitoring of building companies based on the Malaysian Model. Training of Banks Staff on various aspects like: - underwriting, developer financing, documentation, foreclosure etc. May study housing finance projects from Srilanka and Thailand / Malaysia.
- CIB information for customers is shared between banks through the Central bank.
- Rationalization of Stamp duties/registration Fee. Disbursement by HBFC from its present Rs. 1.5 billion to Rs. 7 billion in the next 5 years.
- Low cost housing scheme for shifting the Katchi abadies in a more organized manner.
- Insurance companies should be allowed to underwrite default risk.
- Extensive publicity in shape of advertisements in print and media w.r.t. the housing finance available and its procedures and benefits. Especially those which are non interest bearing schemes.
-
Success stories of Banks and Builders who have performed well be highlighted to create competition. Habib Bank and National Bank being the largest banks in the country should immediately launch their Housing Finance Product/Package covering all segments of the society, all cities and all professions. Regulatory agencies like the KBCA etc should be firm but should avoid harassment.
Broadly speaking a rapid growth in housing finance business will accrue significant benefits to the economy in the form of employment opportunities, support to a variety of sectors, a higher economic growth, and fulfillment of an important social need of own Makaan.
CONCLUSION
As it is now evident from the above findings that housing finance is the most important input required for the promotion of construction industry leading in turn to the economic revival of a nation.
Housing and allied construction sector is not only highly labour intensive but it has also multiplier effects on industrial activity in the country. Revival of this sector will also generate momentum in almost 70 allied industries Thus the housing and construction sector can safely be regarded as the mother of industrial activity in the country.
The National Housing Policy 2001 embodies measures to ensure the development of the housing sector by use of a number of instruments such as availability of concessionary Housing Finance, access to land cross-subsidy and removal of bureaucratic and legal bottlenecks to facilitate the entire process of home ownership. Measures adopted by the Government/SBP particularly in the provision of housing finance at affordable rates will provide a significant boost to housing and construction sector. The low share of Housing Finance to GDP does not represent any lack of demand – rather it reflects the absence of properly organized approach to housing finance which has hitherto suffered form rather high interest rates and somewhat lack of competition in the financial sector. There are some other significant constraints in the housing sector that either increase the cost of transaction or increase risks for the lender to unmanageable levels. These can be identified as poor record / retrieval of property rights, high stamps duties, bureaucratic delays, corruption, disorganized state of the real estate market etc. It is worldwide-recognized fact that the housing industry of a country plays a vital and significant role in the development of its economy and prosperity.
LIST OF PERSONS INTERVIEWED
NAME OF SOURCEPERSONS DESIGNATIONS AND ORGANIZATIONS
- Sir Hunaid Bhai Professor Institute Of Management Sciences
- Dr.Mohsin Professor Institute of Management Sciences
- Sir Arif Professor Institute Of Management Science
- Mr.Ayaz Khalil Vice President Habib Bank Limited(R.H.O)
- Mr.Durrani Manager Habib Bank Limited
- Mr Usman Officer of H.F.S Habib Bank Limited
- Mr.Aqueel Manager PICIC Commercial bank
BIBLIOGRAPHY
- Circular of HBL
- Circular of PICIC Commercial bank
- Manual of HBL
- Brochures of HBL
- Brochures of PICIC commercial bank
- Annual reports of HBL
- Encarta Reference
- Intern ship report on HBL
