NRB's new realty loan policy cheers banks

KATHMANDU, July 14: The decision of Nepal Rastra Bank (NRB) on Tuesday to ease renewal of realty loans has given a relief to banks and financial institutions (BFIs). "The decision will definitely help BFIs as they can now renew the loans for a year even on receiving just the outstanding interest," said Ashok Rana, president of Nepal Bankers Association.

More than the realtors, BFIs will benefit from the decision as their loan exposure to the realty sector has been simply too high. Amid realty slump, BFIs find it difficult to realize loan repayments.

The central bank´s decision to raise the limit of home loans from Rs 6 million to Rs 8 million has further enabled the BFIs to exclude a substantial chunk of their loans from the real estate loans, on which NRB has put a cap. Going by the NRB directives, BFIs need to slash their realty loans exposure to 25 percent of the total loans portfolio.

"This will help BFIs to comply with the realty cap imposed by NRB," said Prithvi Bahadur Pande, CEO of Nepal Investment Bank.

The relaxation will mainly help development banks and finance companies that have as much as 70 percent loans exposure to the sector.

Realtors and their apex body Nepal Land and Housing Developers´ Association (NLHDA) have been demanding the banks to restructure their loans by capitalizing the interest as well. They had asked the central bank to raise the limit of personal housing loans to Rs 12 million.

NLHDA General Secretary Min Man Shrestha said the central bank´s decision has ignored the needs of realty market.

"It (NRB decision) will benefit only small developers and dealers as bigger players operate under longer-term project loans," said Shrestha. It will relieve the BFIs but there is nothing for largescale property developers to cheer about, he said.

"We were at least expecting NRB to help us recapitalize interest for at least a year," he added. Given such apprehensions of property developers, bankers expressed doubt if the latest NRB move to contain the crisis in BFIs will bring the desired results.

Bankers and stock market analysts have expressed similar concerns as whether NRB decision to allow BFIs to determine the value of stock and take margin lending decisions will ease situation for investors.

Previously, the central bank had allowed banks to issue margin lending at 60 percent of average valuation of trading price of the last 180 days.

Given that BFIs are taking extra caution while issuing margin lending in the present slump, Pande too opined that the decision will barely impact the actual loan flow to the market.

Nonetheless, the decision is believed to have sent a positive message to the stock market. "It will ease BFIs´ operations as well," said Rana.

Source:myrepublica

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