Kathmandu:With problems in the realty sector lending far from over, bankers have started working on a strategy for the safe-landing of loans in the sector.

The top brass of the Nepal Bankers’ Association (NBA) recently held a meeting in a effort to hammer out a collective solution to the problems seen in the realty sector lending.

According to NBA President Ashoke Rana, the meeting was held to strike common ground on a long term solution to the problems. “It is high time that all bankers converge to a point in order to seek a feasible solution after assessing the gravity of the problem through rigorous study,” Rana said. “It was a preliminary meeting and we are yet to decide on the methodology of the study; we will reach a conclusion only after going through suggestions from all the member banks.”

Despite some relaxations made by the Nepal Rastra Bank (NRB), banks are seeing an increasing default in realty loans and bankers openly admit there is stress in the sector. “There is stress in realty loans, but it is not a systemic risk,” said Sashin Joshi, the chief executive officer of NIC Bank. “However, we are trying to assess the gravity of the problem and look out for a possible solution.”

Bankers say they will first collect data on realty loans and analyze them before holding discussions with the central bank. Kist Bank Managing Director Kamal Gyanwali echoed Joshi and said the entire members’ voice on the problems and possible solutions is more likely to produce an effective conclusion.?

According to bankers, around Rs 120 billion has gone to the realty sector. Bankers say problems lie in loans given for pure speculative land financing and housing development.

“The market itself will correct the pure speculative financing on land and housing and not much can be done to save such investment,” Joshi said. “Our intention is to try to find out a way to provide some relief to housing development meant for final consumption.”

With banks tightening realty lending and interest rates remaining high, property developers are finding it difficult to complete their projects and sell them. Likewise, new apartments are also coming up fast, but their demand is low. “Those who are in the middle of constructing apartments may need restructuring of their loan or may even need additional loans to lubricate their project,” Joshi said.

source: Suman Subedi, The Kathmandu Post, 1 Dec 2011