Kathmandu: Along with the increase in real estate transactions over the last two quarters, banks’ loan recovery is also becoming positive.
In the second and third quarters of the current fiscal year, there has been no significant improvement in the total number of real estate transactions, document transfers (registration), the number of title deed (Rajinama) transactions, or the total area of land transacted.
However, there has been a significant improvement in the value of title deed transactions and revenue collection. Based on transaction value, real estate trading in the second and third quarters of the current fiscal year has reached its highest level since the fiscal year 2079/80.
In the third quarter of the current fiscal year, real estate worth NPR 183.90 billion was traded based on title deed transaction values. Similarly, transactions worth NPR 154.97 billion were recorded in the second quarter, while NPR 106.26 billion worth of transactions took place in the first quarter.
An analysis of real estate transactions over the past four years shows that only in the current fiscal year have transactions exceeded NPR 100 billion for three consecutive initial quarters, according to Nepal Rastra Bank’s report on “Real Estate Transaction Trends and Current Status.”
Despite the lack of significant improvement in total transactions, document transfers, number of deals, and area, the substantial increase in transaction value indicates a rise in the trading of high-value properties in urban areas compared to rural areas.
Bankers state that it is not just real estate transactions showing improvement; there is also a visible improvement in banks’ loan recovery.
“There is an improvement in collateral auctions as well. Sales of both large and small collateral have improved,” says Ram Chandra Khanal, CEO of Kumari Bank and executive member of the Nepal Bankers’ Association. “It’s not that economic activity has improved significantly. In many places, there is a realization that land must be sold to pay off debts, even if the price is lower. Some borrowers are finding buyers for their mortgaged land themselves to settle their loans.”
Khanal mentioned that even land previously considered overpriced is now being sold. He added that while some borrowers have committed to depositing funds into their accounts by the end of the month, one must wait until the month-end to see if those commitments are fulfilled.
“In the past, Nepal Rastra Bank had a provision where interest due by the end of Asar (mid-July) could be recorded as income even if collected by the end of Shrawan (mid-August). This allowed those unable to pay in Asar to do so in Shrawan. It is difficult to say right now how many will deposit by the end of Asar,” Khanal said. “However, the market response is positive. There is an improvement in the behavior encountered when staff go into the field.”
Sudesh Khaling, CEO of Everest Bank, also notes a slight improvement in the lack of financial discipline seen in borrowers over the past few years.
He says that borrowers who previously avoided contact are now reaching out to bank staff, proposing various plans to repay loans, requesting more time, or seeking fine waivers. “The working environment for the banking sector has improved, which is a positive sign,” Khaling says. “It will take time for loan demand to increase and for recovery to fully improve until there is a broader improvement in economic activity.”
Sujit Kumar Shakya, CEO of NIC Asia Bank, also mentions that while there isn’t a massive improvement in recovery, there are some positive signs. “In our case, the properties that need to be auctioned or sold are more small-scale than large. Assets worth NPR 2-3 million to NPR 20-40 million are being sold,” he said. “Those who waited for years hoping real estate prices would rise are now selling even at reduced prices to settle their debts. Buyers are also purchasing at these lowered prices.”
He stated that those with practical problems are selling properties even at a 20-30% discount, providing opportunities for those waiting to buy at lower prices, particularly in urban-centric areas outside the Kathmandu Valley.
“Recovery has not improved significantly. In some places, staff are still facing mistreatment. However, such incidents are decreasing,” Shakya says. “In some parts of Madhesh, borrowers are presenting plans, saying they will pay if given more time. It’s not a state where recovery has changed drastically, but the environment is becoming more favorable.”
Tilak Raj Pandey, CEO of Nepal Bank, says the expected improvement in recovery is not yet visible. He noted that while things are slightly more positive than last year, there is no improvement in recovery from large borrowers. “Small borrowers are somehow managing funds to pay their loans. The problem lies with large loans. Until that improves, we cannot say recovery has improved,” he told Clickmandu. “The environment for recovery seems somewhat positive, but there isn’t much improvement in actual recovery yet.”
Ashok Rana, CEO of Himalayan Bank, however, believes there is no improvement in recovery in the market. “Collateral auctions and non-banking assets are not being sold. Even when notices are published to sell assets, no applications are received,” Rana says. “The situation isn’t getting worse, but recovery in bad files hasn’t happened yet.”
Santosh Koirala, CEO of Machhapuchhre Bank and President of the Bankers’ Association, says that while recovery is positive, two regulatory provisions are causing some issues.
“In the past, interest due at the end of Asar could be recorded as Asar income if recovered by Shrawan 15. Now, closing must be based only on what is recovered within the end of Asar,” Koirala says. “Some borrowers hold off on interest payments until after their own closing. Not being able to show income if paid on the 1st or 2nd of Shrawan has created a problem.”
The second reason, he explained, is related to provisioning. Previously, if a borrower who wasn’t regular paid their interest by the end of Asar, they could be classified as ‘Good’ and the provision could be reversed. However, now, even if past dues are cleared by Asar, the provision cannot be ‘written back’ immediately.
“The provision that a loan can only be classified as ‘Good’ and the provision reversed three months after the loan becomes regular has caused issues for loans recovered after Chaitra (mid-April),” he said. “However, the recovery environment looks positive. Having traveled from Dhangadhi to Biratnagar, I see the environment for recovery has improved. While there’s a different problem where some cannot pay due to lack of income, borrowers are coming into contact and presenting new plans.” He added that the situation in Madhesh, where the biggest problems were seen, is also becoming positive.
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