Syed Muhammad Ghaznavi ISLAMABAD, Mar 01 (INP-WealthPK): The Government of Pakistan plans to complete the privatisation of the House Building Finance Company Limited (HBFC) by the end of 2022, and currently the parliamentary committee on privatisation is scrutinising the process. The HBFCL, previously known as House Building Finance Corporation, is a state-owned entity which is struggling to grow its earnings per share consistently despite boasting a customer-friendly model and products for a wide spectrum of consumers in the housing finance market. Until 2017, the government was a majority shareholder in the institution, holding 62.5% of the shares. The State Bank of Pakistan (SBP) owned the remaining 37.5% shares. Due to the institution’s poor performance, liquidity had to be injected into the business through the SBP. By 2017, the debt plus markup owed by the HBFC to the central bank amounted to roughly Rs16 billion. The government then decided to convert the debt obligation into equity for the State Bank, increasing the SBP’s ownership from 37.5% to 90.31%. When asked about the reason for the institution getting privatised, an HBFCL official responded, “This is a question of policy, we don’t know,” before adding, “The government doesn’t want to be exposed to leverage.” An analysis of the company’s financial statements shows a high percentage of non-performing loans. [caption id="attachment_64321" align="aligncenter" width="450"] HBFC annual statements[/caption]

(Source: HBFC annual statements)

From 2014-2018, the percentage of non-performing loans was above 30, reaching as high as 45% during 2014 and 2017. “We run a couple of reports to check a person’s credit history,” explained the official. “The SBP has a report which allows us to check the credit history of a person,” he added, explaining the mechanism for checking a potential borrower’s credit worthiness. In 2010, the World Bank issued a report titled “Expanding Housing Finance to the Underserved in South Asia” which called for overhauling of the HBFC. The report referred to HBFC as the “slowest in loan administration” compared to private and foreign banks offering housing finance. The Privatization Commission has appointed MCB Bank Limited, Elixir Securities Pakistan, EY Ford Rhodes and Haidermota & Co as members of the Financial Advisory Consortium for the transaction. Acquisition terms for privatisation include the HBFC continuing to operate as a development finance institution with up to 30% of the funds available for deployment to be utilised for diversifying the portfolio by the new owner. This will ensure that the institution remains a specialised housing finance entity.