March 29, 2021
SBP changes prudential regulations

SBP changes prudential regulations to encourage investment in REITs

The State Bank of Pakistan has made changes to prudential regulations for Corporate and Commercial Banking to encourage investments of bank/ development finance institutions (DFIs) in the Real Estate Investment Trusts (REITs).

The central bank in a recent statement said in accordance with the government’s initiative for the improvement of the housing and construction sector, the SBP has been taking various steps to upgrade banks/ DFIs investment through their financing in the development of these sectors.

The statement given by the central bank read; “In order to further boost activities in these sectors, the SBP has now made changes to certain provisions of existing Prudential Regulations for Corporate & Commercial Banking to encourage enhanced participation and investment of banks/DFIs in the REITs,” 

Asset management firms that own or finance income-producing real estate through a number of property sectors are known as REITs. Various types of funds are floated by these wealth management firms to collect funds from the general public and institutions. REITs invest in real estate properties, boosting investment in the housing and construction sectors and adding to the economy.

Banks and DFIs will be allowed to invest up to 15 percent of their equity in REITs under the new SBP rules, compared to the current cap of 10 percent. This move would not only attract more capital to REITs, but it will also enable banks and DFIs to diversify their portfolios. 

Moreover, the SB has eased restrictions on seeking funding against shares of publicly traded group companies. It will help investors collect liquidity to invest n new business prospects and projects, resulting in increased economic activity.

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