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SBP Agrees Banks to Spend More Capital in Real Estate

Karachi: According to a news source, the State Bank of Pakistan (SBP) has loosened the requirements for banks and Development Finance Institutes (DFI) in terms of capital adequacy by reducing the applicable risk weight on investments in Real Estate Investment Trusts (REITs) units from 200% to 100%.

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According to reports, the modification has been put in place for a 5-year period and is designed to boost bank and financial institution involvement in housing and development plans. Banks will be able to invest more in REITs after the risk weight values are reduced without having to commit more money, which will stimulate the real estate development industry.

The SBP circular further states that, to increase the security of the investment, the banks and other financial institutions’ investments in REIT will now be made in the “Banking Book” rather than the “Trading Book.”

After five years, the regime may be revisited in light of the “banks’ exposure and performance of the REITs sector.”

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The document also suggests allowing REITs to list additional properties on the market for banks to invest in, which will increase the supply of housing as the government intends.

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