Despite several attempts to bring down loan exposure of banks to the realty sector, the size of loan to the sector has continued to remain static over first seven months of the current fiscal year. According to the latest statistical report of Nepal Rastra Bank (NRB), the total lending to real estate sector from the commercial banks stood at Rs 67.45 billion at the end of mid-February this year. However, exposure of all commercial banks, development banks and finance companies stands at Rs 94.8 billion. It is the figure exclusive of home loans up to Rs 8 million with the central bank allowing banks and financial institutions to keep such loans out of category of realty loans.

Total lending of commercial banks into the realty sector was Rs 68.90 billion at the end of last fiscal year. But there has been no major change in the figure of exposure in realty sector for the past seven months. Over the seven months, the loan size has decreased by only Rs 1.45 billion. The marginal reduction in size of realty loan has been attributed to central bank’s relaxation measures, including raising the ceiling of loan exposure in home loans—not exactly the realty loans. Recently, the central bank has raised limit of home loans to Rs 10 million, which ultimately reduced loans exposure of banks and financial institutions to realty sector. “The size of the loan exposure to realty sector remaining at same level over the last seven months means the central bank’s move has done little in recovery of realty sector loans,” said a banker. He said that the figure itself shows the loan recovery process has stalled at where it was at the beginning of this fiscal year. “Realty developers are not servicing their loans properly and they are also not ready selling the properties at distress value,” he said. Lately, banks have also been telling the realty developers to sell their properties at distress value to recover loans. As auctioning process can not earn much value for the properties, banks are telling realty traders to sell off their properties themselves.

With poor transactions, realty developers say that they were not in position to pay loans at the moment. “It should be considered as a great achievement if realty traders became able to service interest alone,” said Min Man Shrestha, general secretary of Nepal Land and Housing Developers’ Association. He said that it is necessary to reduce the interest rate to ensure better servicing of loans.

A senior NRB official agreed that recovery has been difficult as the buyers are still in wait and watch mode. “On the central bank’s part, we have done our best by capping the banks exposure.” However, NRB Spokesperson Bhasker Mani Gnawali said the banks should not blame the stagnant realty market but make their utmost effort to recover the loans. “Any ‘effort’ that dœs not bring result is not considered ‘effort’,” said Gnawali, adding, “the banks should auction the properties forcefully if the realty developers are not ready to sell their properties.” Such a sluggish rate of recovery, according to Gnawali, could be due to nexus between the bankers and realty developers. “We will be more vigilant in monitoring such activities in coming days,” said Gnawali. Given the realty traders facing difficulty to clear the loans, the government has also been working on whether the apartments could be developed as hotels or they could be sold to the government employees by making loans available at cheaper interest rate from institutions like Employees Provident Fund and Citizens Investment Trust. The central bank has also already expanded the deadline for banks and financial institutions to reduce their lending exposure to the realty sector to 25 percent by one more year until mid-July 2013.

source: The Kathmandu Post, 1 March 2012