The State Bank of Pakistan (SBP) has amended its rules to encourage banks/DFIs to increase their investments in REITs without having to allocate relatively large amounts of capital.
This will, in turn, help banks promote the development of Pakistan’s real estate sector.
The enhanced participation of financial institutions backed by regulatory initiatives will also encourage REIT Management Companies to launch new REITs, and boost the government’s agenda for the development of the housing and construction sectors.
Therefore, the SBP has amended its capital adequacy regulations by significantly lowering the applicable risk weight (from 200 percent to 100 percent) on banks/ DFIs’ investments in the units of Real Estate Investment Trusts (REITs).
REITs are companies that raise funding from institutions and the general public, and deploy them through investments in real estate properties.
It may not be out of place to mention that the SBP has been taking a number of regulatory steps to enhance banks’/DFIs’ participation in such sectors through their financing and investment activities.
Earlier, the SBP had amended certain provisions of its existing Prudential Regulations for Corporate and Commercial Banking to encourage enhanced participation and investment of banks/DFIs in the REITs that enabled them to make higher investments of 15 percent of their equity against the previous limit of 10 percent.
Moreover, the SBP has allowed the banks to count their investments in shares/units/bonds/TFCs/Sukuk issued by the REIT Management Companies towards the achievement of their mandatory targets for housing and construction finance.
The amendments in the SBP’s capital adequacy regulations will further incentivize banks to contribute to a well-functioning capital market for the real estate sector.