Kathmandu: As poor recovery of real estate loans continues to trouble banks and financial institutions (BFIs), they have asked the central bank to allow them to adjust the loans recovered in the fourth month of the current fiscal year in the first quarter’s balance sheet.

The Nepal Bankers’ Association (NBA) and other associations of financial institutions along with real estate traders jointly made the request to Nepal Rastra Bank (NRB), citing problems in loan recovery in the first quarter due to festivals.

Earlier in July, the central bank had allowed BFIs to adjust both principal and interest recovered in the first month of the current fiscal year in the annual balance sheet of the last fiscal year to facilitate loanees to arrange funds for repayment which would help BFIs show a good balance sheet.

“We asked for the extension of the repayment period by one more month as most of the banks sought such a measure at an NBA meeting,” said NBA President Ashoke Rana. Bankers had made the request to the central bank before the Tihar festival. “Several BFIs are asking me to follow up NRB regarding the matter even now,” said Rana.

According to Rana, BFIs are facing difficulties in recovering loans that went to the real estate sector. “Although our bank (Himalayan Bank) has only 8 percent exposure to the sector, recovery of such loans is slow compared to others.”

Many housing apartments have remained unsold and developers are reopening bookings. Realty transactions have been disappointing in the Kathmandu Valley in the first quarter of the current fiscal year. According to the Department of Land Reforms and Management, revenue collection of five Valley-based land revenue offices plunged by 17.26 percent to Rs 345.07 million in the first quarter compared to the same period last year.

As of the second month of the current fiscal year, lending to the real estate sector stands at Rs 97.67 billion out of the total of Rs 722.68 billion, according to the central bank.

Bankers say banks, especially those having huge exposure to the realty sector, are facing problems. “Recovery from other sectors also has not been as expected in the first quarter due to Dashain and Tihar festivals,” said Mega Bank CEO Anil Shah.

The central bank is now assessing whether to extend the repayment period again. “We are ready to be flexible on such measures if they help the banking system,” said a senior NRB official. Central bank officials, however, maintained that allowing such extensions time and again could promote bad habit (not being serous about timely recovery/repayment of loans) among loanees and bankers.

Other demands of bankers include allowing BFIs to maintain the realty loan exposure at 30 percent even in the current fiscal year. As per the NRB directive, they are required to reduce their realty loan exposure to 25 percent at the end of the current fiscal year. They have also demanded that BFIs be allowed to provide loans up to 80 percent of the market value of land and house put up as collateral from the current 60 percent, according to a realty trader.

Given the central bank already allowing BFIs to remove home loans up to Rs 8 million from the category of realty loans, they have now requested that the limit be increased to Rs 10 million and BFIs be allowed to restructure realty loans without provisioning.

source: The Kathmandu Post, 1 Nov 2011