Liquidity crunch is leading to credit crunch, according to the bankers.
"The liquidity crunch has forced the banks to delay already committed loans also," said a member of Nepal Bankers Association (NBA).
Unlike the bankers expectation that tight liquidity situation will improve from April, the situation is still not yet comfortable.
Delayed budget coupled with government’s inability to spend led to liquidity crunch in the financial sector, the banker said, adding that normally the banks face tight liquidity situation for two months every year "but this fiscal year, it has lengthened to almost one year."
Due to liquidity crunch banks are not being able to finance automobiles let alone productive sector and housing sector – a separate portfolio created by central bank on request of housing developers for easy financing facility.
Due to tight liquidity situation, some 300 vehicles have been stranded at Birgunj customs as the banks have stopped financing automobiles. "It has also hurt government coffer as automobiles is one of the key contributors of the revenue," Automobiles Dealers Association president Saurav Jyoti, said, adding that automobiles import has plunged by 40 per cent.
Similarly, housing and real estate sector is also bearing the brunt of tight liquidity situation. " in 2009-10, not a single project has been approved due to tight liquidity situation, though demand for housing is rising ,” vice president of Nepal Land and Housing Developers' Association Om Rajbhandari, said, adding that in the last seven years, only 33 housing projects have been approved.
However, the government officials and central bank do not agree. “The banks have been lending for a longer period and collecting short term deposits creating a deposit-lending mismatch that is one of the key reasons of tight liquidity," according to senior economic advisory of Finance Ministry Keshav Acharya.
"The government treasury has Rs 6.47 billion surplus by the nine months of current fiscal year, he said, adding that the amount is not that huge and on top of that the banks are buying development bonds but not interested in repo that could have injected liquidity.
“They have bought Rs 2 billion worth repo, while the central bank had issued Rs 5 billion repo last week," said central bank spokesperson Bhaskar Mani Gyawali. "Had there been tight liquidity situation, the banks would have bought Rs 5 billion worth repo," he said, adding that, on the other hand, the central bank received Rs 7 billion worth application for Rs 5 billion worth development bond last week.
Though, the bankers are claiming that Credit to Deposit ratio has gone up, central bank governor Dr Yubraj Khatiwada claimed that the CD ratio has not gone over the board. "All the indicators including CD ratio of commercial banks are sound," he said, adding that there is, however, mistrust among the banks themselves and bankers’ belief that deposit growth rate will remain constant has led to today's tight liquidity situation. "They lent aggressively believing that the deposit growth rate will remain constant," he added.
According to central bank data, the commercial banks have Rs 647 billion worth deposit by the May end. By the end of last fiscal year, they had Rs 617 billion worth deposit. "The deposit growth rate has slowed down," the governor said.
Showing posts with label Nepal Land and Housing Developers' Association. Show all posts
Showing posts with label Nepal Land and Housing Developers' Association. Show all posts
Saturday, June 4, 2011
Wednesday, February 9, 2011
Housing may get breather from loan-cap
Central bank might separate home loan from real estate cap giving a breathing space to the cash-strapped banks and real-estate sector.
Nepal Rastra Bank governor Dr Yubraj Khatiwada indicated that the central bank doesnot want any sector to be hurt due to its directives, though it will continue to work for the healthy financial sector. However, he suggested the real estate entrepreneurs to build housing units at the range of Rs 3 million to Rs 4 million that is within people's purchasing power.
"Adding the investment from finance companies and credit cooperatives, the investment in the real estate sector could come roughly to around Rs 200 billion," he said, addressing an interaction ''Real Estate sector and its contribution on economy,' organised by Nepal Land and Housing Developers' Association (NLHDA) in the Valley today.
He also suggested the bankers to asses risk before lending in a single sector. "Only profit bench-marking should not be the lending criteria," he said, indicating that the mid-term review of the Monetary Policy might separate the home loan and real estate loan.
The bankers and real estate entrepreneurs have asked the central bank to separate home loan and real estate loan. "The ceiling on real estate investment of 40 per cent has to be separated in housing loan for developers and home loan for users," said Om Rajbhandari, vice-president of the NLHDA. "The cost of the developers and buyers both has increased due to the central bank's cap on real estate loan."
Supporting the real estate entrepreneurs Rajan Singh Bhandari, vice-president of Nepal Bankers Association (NBA) said that the developers are not getting the buyers for their housing units due to 'no access' to credit. "The developers, who have borrowed from the banks, could not sell their housing units and apartments that has put the pressure on the lending bank," he said, adding that the banks non-performing assets (NPA) would shoot up in case of the borrower developers' inability to pay back the banks.
"In case of inability of payment for six months, the banks have to provision 50 per cent of the loan," he said, adding that the situation will hit the already cash-crunch commercial banks hard. Commercial banks have roughly lent Rs 50 billion in the sector.
Real Estate -- be it in Nepal or the most developed countries as USA -- tends to follow a definite cycle. Analysing the real estate development cycle from post 1990, it faced a favourable climate fuelling the land transactions high up. "It was the Recovery Phase of real estate," Rajbhandari said, adding that after some years due to excessive price hike, it fell down a little around 1998.
"In the year 2000, the sector touched the Prosperous Phase because not only land transactions increased, but with the introduction of new concepts like Community Living, other product as housings in well developed lands along with all necessary infrastructures were also very much in demand," according to him.
"Till 2007, the sector reached its Peak Phase with many new housing and apartment projects being launched every other day. However, in 2009, there were amendments in the Fiscal Policy like income source to show in case of ownership of land worth Rs 2.5 million above and land plus house worth more than Rs 5 million, new Capital Gain Tax, Voluntary Declaration of Income Source (VDIS) and VAT.
Because of the policies, the sector reached the stage of Recession. Banks also faced difficulties, as the surplus money made in transactions did not go to banks, and this was, in fact a major catalyst for the liquidity crunch.
"With the introduction of NRB directives one year ago, the environment for the housing sector was not favourable and it faced controlled mechanism," he said, adding that currently the Real Estate has reached the phase of Depression and moving further towards the Bottom, with no Real Estate transactions taking place.
Nepal Rastra Bank governor Dr Yubraj Khatiwada indicated that the central bank doesnot want any sector to be hurt due to its directives, though it will continue to work for the healthy financial sector. However, he suggested the real estate entrepreneurs to build housing units at the range of Rs 3 million to Rs 4 million that is within people's purchasing power.
"Adding the investment from finance companies and credit cooperatives, the investment in the real estate sector could come roughly to around Rs 200 billion," he said, addressing an interaction ''Real Estate sector and its contribution on economy,' organised by Nepal Land and Housing Developers' Association (NLHDA) in the Valley today.
He also suggested the bankers to asses risk before lending in a single sector. "Only profit bench-marking should not be the lending criteria," he said, indicating that the mid-term review of the Monetary Policy might separate the home loan and real estate loan.
The bankers and real estate entrepreneurs have asked the central bank to separate home loan and real estate loan. "The ceiling on real estate investment of 40 per cent has to be separated in housing loan for developers and home loan for users," said Om Rajbhandari, vice-president of the NLHDA. "The cost of the developers and buyers both has increased due to the central bank's cap on real estate loan."
Supporting the real estate entrepreneurs Rajan Singh Bhandari, vice-president of Nepal Bankers Association (NBA) said that the developers are not getting the buyers for their housing units due to 'no access' to credit. "The developers, who have borrowed from the banks, could not sell their housing units and apartments that has put the pressure on the lending bank," he said, adding that the banks non-performing assets (NPA) would shoot up in case of the borrower developers' inability to pay back the banks.
"In case of inability of payment for six months, the banks have to provision 50 per cent of the loan," he said, adding that the situation will hit the already cash-crunch commercial banks hard. Commercial banks have roughly lent Rs 50 billion in the sector.
Real Estate -- be it in Nepal or the most developed countries as USA -- tends to follow a definite cycle. Analysing the real estate development cycle from post 1990, it faced a favourable climate fuelling the land transactions high up. "It was the Recovery Phase of real estate," Rajbhandari said, adding that after some years due to excessive price hike, it fell down a little around 1998.
"In the year 2000, the sector touched the Prosperous Phase because not only land transactions increased, but with the introduction of new concepts like Community Living, other product as housings in well developed lands along with all necessary infrastructures were also very much in demand," according to him.
"Till 2007, the sector reached its Peak Phase with many new housing and apartment projects being launched every other day. However, in 2009, there were amendments in the Fiscal Policy like income source to show in case of ownership of land worth Rs 2.5 million above and land plus house worth more than Rs 5 million, new Capital Gain Tax, Voluntary Declaration of Income Source (VDIS) and VAT.
Because of the policies, the sector reached the stage of Recession. Banks also faced difficulties, as the surplus money made in transactions did not go to banks, and this was, in fact a major catalyst for the liquidity crunch.
"With the introduction of NRB directives one year ago, the environment for the housing sector was not favourable and it faced controlled mechanism," he said, adding that currently the Real Estate has reached the phase of Depression and moving further towards the Bottom, with no Real Estate transactions taking place.
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