Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instructions No. (5) of 2016

Concerning Housing Loans and Real Estate Financing

Pursuant to the provisions of Legislative Decree No. (9) of 2010 concerning Banks, particularly Article (72) thereof,
Pursuant to the provisions of Decision No. (132) of 2011 on the Licensing and Supervision of Specialized Lending Institutions, particularly Article (35) thereof,
and in accordance with the powers delegated to us,
and in the public interest,
we have issued the following Instructions:

Article (1)

Definitions

The following words and phrases shall have the meanings specified below unless the context indicates otherwise:

Real Estate Financing Loan: Loans or financings granted to natural or legal persons for the purpose of financing the purchase or construction of real estate, including the purchase of land for residential purposes, or finishing or completing an existing building, provided that such real estate is mortgaged in favor of the bank or specialized lending institution.

Housing Loan: Personal loans granted to natural or legal persons for the purpose of financing the purchase or construction of real estate, including the purchase of land for residential purposes, or finishing or completing an existing building, without requiring the provision of a real estate mortgage.

Article (2)

Scope of Application

The provisions of these Instructions shall apply to all banks and specialized lending institutions operating in Palestine.

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Article (3)

Granting Conditions

The bank and specialized lending institution must comply with the following, in accordance with the provisions of the table included in this Article:

1. The value of financing granted to the client shall not exceed 85% of the appraised value of the real estate or the real estate value according to the sales agreement, whichever is lower, provided that the repayment period does not exceed 25 years from the date of grant if the client's credit rating is A or B.

2. The value of financing granted to the client shall not exceed 80% of the appraised value of the real estate or the real estate value according to the sales agreement, whichever is lower, provided that the repayment period does not exceed 25 years from the date of grant if the client's credit rating is C.

3. The value of financing granted to the client shall not exceed 60% of the appraised value of the real estate or the real estate value according to the sales agreement, whichever is lower, provided that the repayment period does not exceed 15 years from the date of grant if the client's credit rating is D.

4. The value of financing granted to the client shall not exceed 30% of the appraised value of the real estate or the real estate value according to the sales agreement, whichever is lower, provided that the repayment period does not exceed 7 years from the date of grant if the client's credit rating is E.

Table of Basic Conditions Based on Credit Rating

Grant Period (Upper Limit in Years)	Probability of Downgrade in the Next 12 Months %	Loan-to-Value Ratio (LTV) %	Credit Rating Code
25	0-8	85%	A and B
25	8-20	80%	C
15	20 - 61	60%	D
7	61-100	30%	E

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Article (4)

Loans Granted for Residential Purposes

1. In the event of granting a housing loan, the loan value shall not exceed USD 80,000 (eighty thousand US dollars) or its equivalent in other currencies as a maximum, and the financing period shall not exceed 12 years.

2. If the financing value and period exceed those stipulated in paragraph (1) of this Article, the entire financing shall be subject to the granting conditions stipulated in Article (3) of these Instructions.

3. In the event of granting a housing loan, the bank and specialized lending institution must verify that the purpose of the financing is residential, such that the client is not permitted to use the financing amount to settle existing obligations in a proportion exceeding 10% of the financing value.

Article (5)

General Provisions

1. The management of the bank and specialized lending institution bears the decision to grant or deny credit and the consequences arising therefrom.

2. Loans granted for investment or commercial purposes are exempt from the provisions of these Instructions.

3. The granting process for clients not classified in the Credit Information System (having no credit rating due to lack of data in the system) shall be conducted as the bank and specialized lending institution deems appropriate based on their credit assessment, provided that the credit decision does not conflict with the ceilings and paragraphs specified in these Instructions.

4. The client's credit assessment shall be relied upon as it stands when studying the client's credit application, and thus the granting conditions shall be determined according to the client's credit assessment at that time. Anticipated assessments shall not be relied upon in cases where part of the financing is for the purpose of settling the client's existing debts.

5. In the event of granting a joint real estate financing loan or a joint housing loan exceeding the ceiling specified in Article (4), the granting conditions for Article (3) shall be determined based on the credit rating of the primary source of repayment or the highest rating among the co-borrowers in the loan.

6. The monthly obligation ratio (Debt Burden Ratio) for direct obligations shall not exceed 50% of the net income verified at the time of grant.

7. The provisions of these Instructions apply only to mortgage loans with values less than or equal to USD 200,000. If the value exceeds this ceiling, the client's credit rating must be A, B, or C only.

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Article (6)

Financing for Property Purchase or Second or More Residential Loans for the Same Borrower

1. In the event of granting a second real estate financing for the same borrower, financing may be granted to the same borrower provided that the loan-to-value ratio (LTV) does not exceed 40% of the total required financing, regardless of the existing balance or the LTV of the first loan at the time of grant, provided that the necessary collateral is secured.

2. In the event of granting a second housing loan to the borrower, and if the period and value of the housing loan exceed those stipulated in Article (4) paragraph (1), the loan value shall not exceed 40% of the appraised value of the real estate.

3. A second real estate financing loan or housing loan may be granted provided that the value of the second loan does not exceed 40% of the appraised value of the real estate in the case of joint loans where one of the partners does not hold a real estate financing loan or housing loan.

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Article (7)

Repeal

Instructions No. (1) of 2014 Concerning Housing Loans and Real Estate Financing and Instructions No. (2) of 2014 Concerning Housing Loans and Real Estate Financing are hereby repealed.

Article (8)

Implementation and Enforcement

All relevant authorities shall implement the provisions of these Instructions within their respective jurisdictions, and their provisions shall apply as of June 6, 2016.

Market Regulation Department
Palestine Monetary Authority

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Ramallah - Palestine P.O. Box 452 | Tel: +970 2 2415250 | Fax: +970 2 2409922
Gaza - Palestine PO Box 4026 | Tel: +970 8 2825292 | Fax: +970 8 2844487
Email: info@pma.ps
www.pma.ps