The liquidity crisis in the banking sector, the slowdown in the realty sector, and the central bank tightening of the realty loan have suppressed the banks and financial institutions (BFIs) loan disbursement growth to the realty sector in the last fiscal year. The real estate industry sought fewer loans from the banking sector in the last fiscal year as they grappled with multiple issues.

The recent data of the Nepal Rastra Bank (NRB) shows growth in overall realty lending of BFIs stood at 5.56 percent in FY 2022/23 compared to 17.46 percent growth in FY 2021/22. BFIs' loans to the realty sector grew by Rs 31.50 billion in FY 2022/23 whereas such lending in FY 2021/22 increased by Rs 84.17 billion.

According to NRB, the residential personal home loan grew by 3.1 percent in the last fiscal year. BFIs give loans up to Rs 15 million under the residential personal home loan. Such loans from the BFIs increased by Rs 10.32 billion in FY 2022/23, according to the NRB. The personal home loan segment had grown by 13.3 percent in FY 2021/22 as BFIs extended Rs 39.53 billion under this category.

The real estate loan, according to NRB, surged by 9 percent in the last fiscal year. The BFIs lending under this category increased by Rs 21.18 billion in FY 2022/23. Such lending in FY 2021/22 had grown by 24.3 percent or by Rs 44.63 billion. Under the real estate loan category, lending has increased for loans to commercial complexes, apartment construction, and land plotting.

According to bankers, the real estate market hit a low in the last fiscal year due to the economic downturn, and restrictive measures of the government and the central bank. The government restriction on land plotting due to the delay over the classification of lands also hit the realty market hard. And, this was also reflected in BFIs' lending to the realty sector, they said.

During the Covid-19 pandemic, the abundance of cheap money in the financial system fueled asset class investment boom causing massive growth in sectors such as real estate and the stock market. In addition, businesspersons invested the money they received as working capital loans from banks in real estate.

As soon as the liquidity crunch hit the banking sector, the flow of cheap money stopped and the market eventually went into a deep recession. On the other hand, the central bank also tightened lending of banks and financial institutions (BFIs) to the real estate sector, reducing the loan-to-value (LTV) ratio in the Kathmandu Valley to 30 percent and 40 percent outside the valley in the monetary policy for the Fiscal Year 2022/2023.

As banks and financial institutions struggled with liquidity management in the first eight months of the last fiscal year, the growth in BFIs' lending to the realty sector also slowed down, bankers said. "There was lesser demand for realty loans in the last fiscal due to higher interest rates and liquidity crisis in the banking sector," said Nischal Nath Pandey, CEO of Sanima Bank.

With the government lifting restrictions on land plotting recently, bankers expect demand for realty loans will rise in the current fiscal. "Since the second week of August, there have been more inquiries about such loans, which indicates realty loans could surge in coming months," said Pandey. 
 

BFIs' Disbursement of Realty Loan (Residential & Real Estate)