KATHMANDU, FEB 07 - Fearing possible defaults, banks that have loaned heavily to the realty sector have been pressuring their borrowers to sell off their assets at distress value to repay the interest and principal. Urging borrowers to do so is not a conventional way to recover loans, but rising delinquency among realty borrowers has prompted banks to take this measure. Bankers said that they had been advising their customers to sell off their properties on their own to get a better price than what they would get if they were auctioned. NIC Bank CEO Sashin Joshi said banks were doing their borrowers a favour by urging them to sell their properties to repay their loans. “We give pressure to our borrowers to sell their property in good faith,” said Joshi. “Through such sales, they can settle the principal and interest of their loans and still save some money for themselves.” According to bankers, only a few auctions have happened after auction notices were published. For instance, NIC Bank published 20 auction notices for collateral of defaulted loans during the second quarter of the current fiscal year. Joshi said that 13 out of the 20 borrowers sold their properties at distress value and settled their loans. “Similarly, five out of the remaining seven are also trying to make a settlement in the same way.” A CEO of another commercial bank with massive exposure to the realty sector agreed that they had been pressing realty developers to sell their properties at less than the market value to speed up loan settlements. “We are forcing them to sell their properties, especially the expensive plots at prime locations,” said the CEO. “It is because there is still demand for land at prime locations, provided that the price is a little low.” Other bankers also agreed that the method was bringing positive results. DGM of Kist Bank BN Gharti said that they were also recommending to their borrowers to sell their realty holdings at lower prices instead of continuing to make interest payments. Bankers said such measures would not only help banks to recover their loans but also correct inflated property prices. “One of our borrowers who was quoting Rs 2.2 million per anna is now ready to sell at Rs 1.7 million per anna,” said the chief financial officer of a commercial bank. “I am confident that the borrower will come down to Rs 1.5 million per anna within a few months, and that the property will be sold at that price.” According to bankers, property transactions have started to revive along with the price correction which is a good sign for the economy as a whole. “In my opinion, this is the ultimate solution to make the stagnant realty sector vibrant,” said Joshi. Meanwhile, the government has also pledged to facilitate purchase of apartments by civil servants if realty prices were corrected. It has formed a taskforce under the deputy governor of Nepal Rastra Bank to study the possibility of government employees purchasing flats at reduced price besides operating them as apartment hotels. Currently, the loan exposure of commercial banks to the realty sector stands at around Rs 100 billion.
Source: the-kathmandu-post