Nepal's Central Bank Eases Repayment of Real Estate Loans Amid Stagnant Realty Prices

Strategic Insights -

Nepal Rastra Bank (NRB) has introduced a new measure to ease the repayment of real estate loans, aiming to stimulate the stagnant realty market. As per the new circular issued on Monday, banks can renew or restructure real estate loans for up to one year for one time, provided the borrower pays 25 percent of the principal and interest. This move is expected to encourage people taking loans from banks for real estate purposes to repay them, thereby improving the liquidity situation of the banking system.

Key Takeaways:

  • The new NRB circular allows banks to renew or restructure real estate loans for up to one year for one time, provided the borrower pays 25 percent of the principal and interest.
  • The move aims to ease the repayment of real estate loans and stimulate the stagnant realty market.
  • Banks have been instructed to bring down their real estate and housing loans combined to 40 percent by the end of the current fiscal year.
  • The realty sector witnessed a sharp fall of 26 percent in the first 11 months of the current fiscal year in the Kathmandu Valley, according to the Department of Land Reform and Management.
  • Almost all banks witnessed a rise in provisioning in the third quarter of the current fiscal year against the second quarter, partly due to delays in repayment of property-related loans.
  • The Nepal Housing and Realty Development Association (NHRA) has expressed concern that the NRB move does not address the root issue of stagnant real estate prices.
  • The NRB move is expected to help safe-land many vulnerable real estate loans, according to the president of the Nepal Bankers Association, Sashin Joshi.
  • The chief executive officer of DCBL Bank, Sudhir Khatri, has termed the NRB move as correct, which would help the economy from the credit crunch.

Statistics:

  • Real estate and housing loans account for 40% of the total banking sector credit, according to the Nepal Rastra Bank (NRB).
  • The realty sector witnessed a sharp fall of 26% in the first 11 months of the current fiscal year in the Kathmandu Valley, according to the Department of Land Reform and Management.
  • Almost all banks witnessed a rise in provisioning in the third quarter of the current fiscal year against the second quarter, partly due to delays in repayment of property-related loans.
  • Banks have been instructed to bring down their real estate and housing loans combined to 40% by the end of the current fiscal year.

Sources:

  • Kathmandu Post, June 28.
  • EKantipur.com, June 28.
  • Department of Land Reform and Management, Nepal.