Banks lend 20 pc of their loan portfolio to realty

 Commercial banks lent Rs 98.2 billion to the realty sector including both housing and land in the first quarter of the current fiscal year. This is 20 percent of the banks’ total loan portfolio that stands at Rs 481.91 billion in the first three months.

The central bank has categorised real state loans into four categories—residential real estate loan, business complex and residential apartment construction loan, income generating commercial complex loan and other real estate loans (loans for land purchase).

Banks have the highest loan exposure to land purchase (other real estate loan), with Rs 46.39 billion. Loans that went to residential real estate stood second with the exposure of Rs 35.65 billion, followed by Rs 13.31 billion that went to complex and residential apartment construction. Banks’ credit that went to the income generating commercial complexes stood at Rs 2.9 billion.

The monetary policy for the current fiscal year has sought that the banks and financial institutions (BFIs) bring down their lending to lands to 10 percent and housing to 25 percent.

Currently, banks’ loan exposure to lands stands at 9.62 percent. It means they are not in a position to expand loans in this sector. However, they have ample of space to enlarge their investment in housing sector, as their loan exposure to this sector stands at 10.76 percent only.

With a view to diverting realty loans to housing from lands, the Nepal Rastra Bank (NRB), through the monetary policy, had reversed the earlier policy of giving banks more space for lending to lands than the housing sector.

Following the strict measure put in place by NRB, realty transactions have continued to drop, especially in Kathmandu. Revenue collection from realty transactions at five Land Revenue Offices (LROs) in the Kathmandu Valley went down by 58.28 percent in the first five months of the current fiscal year compared to that in the same period last fiscal. LROs collected Rs 641.53 million as registration taxes, against Rs 1.53 billion last year.

Nepal Bankers’ Association President Sashin Joshi said given the slump in realty transactions, banks are facing a tough time in recovering realty loans.

“Those who took loans to buy land thinking that land prices may increase in future may not be able to repay,” he said. Joshi, however, said the banking system is not at high risk, as the size of the loan that went to lands is not so big.
source: The Kathmandu Post: Money (2011),"Banks lend 20 pc of their loan portfolio to realty", The Kathmandu Post,10 Jan 2011

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