Home loans rebound

Home loans have seen faster growth thanks to the rising demand for house ownership amid low-interest rate, giving a much-needed fillip to the country's real estate sector.

The banking sector recorded 17.16 percent year-on-year growth in the home loan portfolio in 2016-17, outpacing the overall private sector credit growth of 15.7 percent in the same fiscal year.

The total size of home loans stood at Tk 66,000 crore in the 2016-17, accounting for 9.1 percent of the total credit to the private sector, according to Bangladesh Bank data.  

“The low-interest rate is mainly driving the demand for home loans,” said QM Shariful Ala, managing director of Delta Brac Housing Finance Corporation (DBH).

DBH holds the largest portfolio in the home loan market and it was Tk 4,200 crore as of September this year.

The non-banking financial institution is offering home loans at interest rates of 10 percent to 11 percent.

The sudden interest rate hike of home loans amid the liquidity crisis at the beginning of 2018 had slowed down the demand slightly for one or two months, Shariful said.

The demand for home loans rose further in the last several months as banks revised down the interest rate after the ease of the liquidity crisis, he added.

Shariful's company had raised the interest rate up to 13 percent in February this year from 9 percent only to revise it down to 10 percent later.

DBH disbursed loans of Tk 700 crore in the first nine months, said the top executive.

Dutch-Bangla Bank Ltd (DBBL), which is offering the most competitive price for home loans in the market, witnessed 100 percent growth in the loan portfolio between September this year and the same month in 2017.

The bank's total loan portfolio stood at Tk 600 crore in September, which was Tk 300 crore in the same month a year ago, according to the bank.

The bank charges between 9 percent and 9.5 percent for home loans.

Dutch-Bangla Bank disbursed loans at 8.5 percent last year but like DBH, it also had to revise up the rate to 10 percent at the beginning of the year when the banking sector was going through the liquidity crunch. Later, it revised down the price to single-digit, said a senior executive of the bank.

DBBL is giving home loan across the country to meet up the rising demand, he added.

The banker said private banks are now focusing on the expansion of home loan portfolios as the products are secure and the recovery rate is high.

Bangladesh House Building Finance Corporation (BHBFC), the only state-owned financial institution that works for house financing, also saw 100 percent growth in its home loan disbursement.

The corporation disbursed loans totalling Tk 400 crore in the last fiscal year, doubled from Tk 200 crore a year ago. It has set a target of disbursing home loans of Tk 600 crore for the current fiscal year, according to BHBFC.

The state lender is offering home loans at 9 percent in the current fiscal year, down from 9.5 percent several months ago, said Debasish Chakrabarty, managing director of BHBFC, adding that the interest rate is 8.5 percent for borrowers outside the city and 8 percent for farmers.

Chakrabarty said BHBFC will get Tk 1,000 crore from the Islamic Development Bank by this October for disbursing loans outside the city in order to improve people's living standard.

Moreover, the Asian Development Bank is willing to give $10 million for house financing and a delegation from the headquarters of the Manila-based lender will come to Bangladesh this month to finalise the deal.

All these funds will boost the business of the real estate sector and increase the contribution of the sector to the gross domestic product, he said.

The real estate sector's contribution to the country’s gross domestic product stands at around 8 percent, Chakrabarty said.  

Standard Chartered Bangladesh, which holds the second position in terms of portfolio size of home loans in August, launched MortgageOne, a home financing solution enabling clients to enjoy a reduced interest rate and loan tenure through maintaining deposits with current accounts.

The foreign bank introduced the new product as part of its effort to boost home loans.

For the existing home loans in the market, clients pay interest based on the outstanding loan amount.

With MortgageOne, clients will pay interest based on the difference between the loan balance and funds in a current account linked to MortgageOne.

In the process, the customer will pay less interest, according to the Standard Chartered Bangladesh.

Default loans in the home loans segment are low thanks to good recovery and it was 3.12 percent in 2016, according to data from Bangladesh Bank.