ADB to boost housing loans in rural areas

Friday, 31 August 2012 00:51 - - {{hitsCtrl.values.hits}}

Approves $ 15 m loan to DFCC Vardhana Bank for relending for home purchase or rehabilitation in post-conflict and tsunami-hit areas

Sri Lankans living in post-conflict and tsunami-hit areas will soon have better access to badly-needed housing loans, after the Asian Development Bank (ADB) approved a $ 15 million (nearly Rs. 2 billion) loan to DFCC Vardhana Bank (DVB) to relend exclusively for home purchase or rehabilitation.

“In order to properly rebuild their lives, Sri Lankans affected by conflict or natural disasters need fair and secure access to home loans,” said Philip Erquiaga, Director General of ADB’s Private Sector Operations Department. “A well-functioning mortgage system with greater commercial bank participation will help reach these often underserved borrowers and help close the market gap.”

This is ADB’s first private sector housing finance project in Sri Lanka and is expected to help close the country’s housing shortage, which is estimated at between 350,000 and one million units, with an additional demand for about 100,000 units every year.

DVB is a medium-sized bank that has a niche strategy to serve the underserved segments of the market. Despite its size, its credit standing is close to or at par with some of the larger Sri Lankan commercial banks. At the end of December 2011, DVB had a 1.3% market share of total banking loans in Sri Lanka.

It is currently expanding its role in post-conflict financing through an increased network and participating in an existing ADB technical assistance to further improve its mortgage loan operations. It is also committing 5% of its ADB-supported housing loans to women, including those who lost their spouses in Sri Lanka’s civil conflict.

The country’s mortgage debt-gross domestic product ratio is very low at 6%, as compared with the global average of around 30%. It is estimated that only 20% of the population has access to housing loans as banks prefer to serve only large, top-tier companies and higher-income customers.

Demand for housing in northern and eastern part of Sri Lanka has steadily increased following the end of the civil conflict, which has led to improved consumer sentiment, rising income levels, and repatriation of Sri Lankans. DVB is also allocating at least 30% of the fund to areas in the north and north-east affected by the ethnic war and in the south damaged by the devastating 2004 tsunami.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2011, ADB approvals including co-financing totalled $ 21.7 billion.