Real Estate boom on borrowing

Real Estate sector has witnessed a highest ever growth in borrowing from the commercial banks in the first 11 months in comparison to the same period last fiscal year.
It has seen a growth of 295.7 per cent growth from Rs 61.3 million to Rs 7.35 billion. Second comes construction sector that has a share of 58.4 per cent in the total borrowing.Commercial banks' deposits also went up by 20.2 per cent to Rs 402 billion — current Rs 50 billion, savings Rs 209 billion and fix Rs 140 billion and margin deposits of Rs 3.1 billion during the period.
Despite the political instability, frequent bandhs and a slowdown in the economy, most of the commercial banks managed to post increase in their net profit — Rs 10.63 billion, according to the unaudited report — in the fiscal year 2007-08, compared to the previous fiscal when 19 commercial banks posted a total of Rs 7.83 billion net profits.
However, the unaudited net profit would have variation, when the audited report will be published after around four months. In the last fiscal year 2006-07, there was a variation of upto 31 per cent in the unaudited and audited reports of a commercial bank.
Non-performing assets (NPAs) on the other hand declined to 8.47 per cent from 9.65 per cent of the total loan in the last fiscal year.During the fiscal year, the commercial bank's advances grew by Rs 20.4 billion to Rs 410 billion and the gross non-performing assets (NPA) declined to Rs 23.99 billion from Rs 22.18 billion in the last fiscal year.
"Similarly, the benefit of increased lending earned from loans and adbvances is higher at Rs 28.81 billion while the average cost of deposits is around Rs 23 billion," said Nara Bahadur Thapa, director at the Research Department of Nepal Rastra Bank (NRB).
The urban-centric commercial banks have started moving closer to the rural areas and shifting their focus to the semi-urban areas — where there is a vast untapped market — pushing their deposits and borrowing both up.
In the fiscal year 2007-08, the commercial banks added 81 new branches making it to a total of 663 branches from Pashupatinagar in the east to Mahendranagar in the west.
Moving closer to the rural areas is a timely strategy of the commercial banks as the rural Nepal has a regular cash flow in the form of remittance that is increasing. According to the Family Budget Survey recently published by the Nepal Rastra Bank, 16 per cent of the income is generated from the remittance.
"However, still around 20 per cent of the total population has the access to the banking system," he said.
Within the fiscal year 2007-08, four new commercial banks Sunrise, Global, Bank of Asia Nepal and Citizens' International came into existance. NMB Bank upgraded to commercial bank from finance company and Development Credit Bank upgraded from development bank making it a total of 25 commercial banks.