Loan exposure of commercial banks to real estate and housing rose in the fourth quarter of the last fiscal year despite a liquidity crunch and Nepal Rastra Bank’s policy of discouraging lending to the sector.

Loan exposure increased to 21.36 percent from 21.27 percent from the previous quarter although banks had almost frozen lending due to the acute cash crunch in the second half of the last fiscal year. With credit halted, the total loans and advances of commercial banks had decreased to Rs. 462 billion in Q4 from Rs. 466 billion in Q3.

Lending to realty and housing amounted to Rs. 98.72 billion. In real terms, however, it is less than Q3 as the total loans and advances by banks also declined. Loans to the sector in Q3 stood at Rs. 99.28 billion.

The total real estate loans amounted to Rs. 63.261 billion while housing loans came to Rs. 35.42 billion. Compared to the third quarter, the total loans to real estate and housing decreased by Rs. 387 million and Rs. 217 million respectively.

Despite the liquidity crunch, 11 banks increased their lending to the sector. Among the banks that increased their lending to the real estate and housing sector are DCBL Bank, Machhapuchchhre, Siddhartha, Nepal Credit and Commerce, NIC, Nepal Bangladesh Bank, Himalayan Bank, Standard Chartered Bank,

Nabil, Rastriya Banijya Bank and Nepal Bank Limited.

Although the central bank has fixed the limit of lending to real estate and housing at 40 percent, DCBL crossed the limit to 43.19 percent by the end of the last fiscal year as per NRB’s report. Its lending to this sector was 36.14 percent during the third quarter of the last fiscal year.

Chief executive officer of DCBL Sudhir Khatri said that real estate and housing lending went up as loans for the productive sector had been lumped together with real estate and housing. The loans that went for commercial complexes and hotels were put under the housing sector that increased the bank’s exposure to the sector, he added.

“DCBL has 20 percent lending in real estate and 23 percent in housing,” he said.

In order to bring down the exposure

to a comfortable level, DCBL has completely halted lending in real estate and housing as well as even to the hire purchase sector, according to him.

Kist Bank witnessed the highest drop in total real estate and housing loans followed by Laxmi Bank, Sunrise Bank, Global bank and Lumbini Bank. As compared to the third quarter, the net decrease in real estate and housing loans for these banks is about Rs. 468 million, Rs. 307 million, Rs. 253 million, Rs. 240 million and Rs. 178 million respectively.

The banks that have the highest increase in their real estate and housing loans are Nepal Bank Limited, DCBL Bank, Rastriya Banijya Bank, Prime Commercial Bank and Himalayan Bank.

These banks have increased their housing real estate and housing loans by Rs. 712 million (25.24 percent),

Rs. 573 million (21.34 percent), Rs. 236 million (5.09 percent), Rs. 205 million (4.83 percent) and Rs. 93 million (2.44 percent) respectively. 

Likewise, the banks that have the highest decline in their real estate and housing loans are Kist Bank, Laxmi Bank, Sunrise Bank, Global Bank and the Agricultural Development Bank.

The bank with the highest exposure in real estate and housing loans is DCBL Bank followed by Kist Bank, Sunrise Bank, Prime Commercial Bank and Citizens International Bank. Of the total loans and advances, real estate and housing loans for these banks amounted to 43.19 percent, 35.32 percent, 32.12 percent, 31.94 percent and 30.23 percent respectively.

Similarly, the bank with the lowest exposure is the Agricultural Development Bank followed by Janata Bank, Lumbini Bank, Nepal Bangladesh Bank and Rastriya Banijya Bank. Of the total loans and advances, the share of real estate and housing loans for these banks was 4.71 percent, 6.46 percent, 5.96 percent, 11.11 percent and 13.70 percent respectively.

source: The Kathmandu Post (2010),"Loan exposure to realty up in Q4",7 September 2010,The Kathmandu Post: Money, p.2