Housing Finance: Banking. Outstanding Housing Sector advances by Banks
Until recently, mortgage lending was never considered quite profitable for commercial banks, so that they imposed serious kinds of restrictions upon their mortgage business, in terms of both individual mortgages and size of mortgage portfolio. Only recently, some commercial banks, both public and private, specialized banks along with other financial institutions, invested a considerable proportion of their combined assets in housing. The total housing related advances of the country’s banking sector in 2007 was approximately BDT 24 billion, about two thirds of which was made up by the NCBs. The housing loans by the banking sector amounted to only 4% of their assets. The private banks have the largest proportion of housing-related assets (9%), and foreign banks have the least involvement in the sector (2%).
Percentage of outstanding housing sector advances of different types of banks
2006 2005 2004 2003 2002 2001 2000
NCBs 41.17 45.35 50.26 53.97 62.75 59.56 62.87
SBs 3.01 2.98 2.57 0.87 2.21 3.27 2.87
FCBs 0.98 0.69 0.56 0.60 0.44 1.23 3.61
PCBs 54.84 50.98 46.61 44.56 34.6 35.94 30.65
Over the years, major problems in loan recovery began to plague the housing portfolios and the banks gradually decreased the proportion of advances for housing. The recovery rate of housing sector loans in the banking sector averages approximately 70%. The poor recovery rate is due mostly to older loans; recovery exceeds 80% on loans disbursed after 1990. Even the rural house lending programmer sponsored by the government, through a 3% refinancing window at the Bangladesh Bank, was stopped because of alleged poor recovery rates.
Outstanding housing sector advances with interest
in billion taka – all banks1
2006 2005 2004 2003 2002 2001 2000
Housing societies 14.52 13.00 10.64 11.83 8.98 3.26 2.19
Urban housing 43.47 40.19 36.33 29.94 30.18 22.91 22.37
Rural housing 1.66 1.08 1.14 1.47 1.79 1.66 1.63
Apartment - 2.26 - - - - - -
All banks include nationalized commercial banks (NCBs), foreign commercial banks (FCBs), specialized banks (SBs), and private commercial banks (PCBs) in Bangladesh.
Source: Scheduled Banks Statistics, Bangladesh Bank
From the above data, it is clear that NCBs were reluctant to extend lending to the housing sector. A number of NCBs only consider housing loans for clients that have other businesses with them and have the income and assets to support these loans. There is not much competition in the housing lending market and most banks offer the same terms for the different client options. All loans are for new house construction only, and banks only lend for urban housing in secure submarkets, which can easily be understood from the table above. Clearly there is an upward trend of contribution in housing societies and urban housing. The contribution towards rural housing is only boosted when the government takes initiatives like Grihayan Tahbil (housing fund) or extends credit to the commercial banks at lower interest rate. Only recently have commercial banks started extending credits for apartment renovation.
Housing cooperatives and credit unions
Although the cooperative movement is widespread in Bangladesh, particularly in the agricultural sector, it has not played a significant role in housing financing. Of the 145,000 cooperative societies in Bangladesh, only 144 are housing cooperatives.