Bankers in Nepal fear loan recovery after quake

Banks and financial institutions in quake-hit Nepal have raised concerns over loan recovery, saying the temblor has severely affected people's ability to repay loans as a majority of them were extended against collaterals of land and houses.
Nepal Rastra Bank (NRB)'s data shows 59 per cent of total Banks and Financial Institutions (BFI) loans are disbursed against collateral of land and buildings as of the first eight months of the current fiscal year.
Loans of 769 billion Nepalese rupees (over USD 7 billion) have been extended against the collaterals of land and houses.
Bankers say the devastating earthquake of April 25 has severely handicapped people's ability to repay loans as it has put strain on incomes from properties they own.

"There are many households which have been generating cash flow by giving out flats on rent to payback bank loans. With their source of cash flow taking a hit, the big question now is how they would repay the loans," Sovan Dev Pant, CEO of Lumbini Bank, was quoted as saying by ekantipur today.
A total of 191,058 houses were completely destroyed in the earthquake and 175,162 were partially damaged. A total of 10,744 government buildings were flattened, while 14,741 were damaged partially as of Saturday, the Home Ministry said.

The value of the damaged property put as collateral could diminish considerably and consequentially may not cover the size of the loans, posing risks to the BFIs, bankers said.

On the other hand, the bankers said it would be difficult to recover loans from the property developers and those who purchased apartments due to the damages caused by the earthquake.
"This will reduce the borrowers' ability to repay loans," said Himalayan Bank CEO Ashoke Rana.
People will now have second thoughts on purchasing apartments if not individual houses. The BFIs have a loan exposure of around Rs 56 billion in the real estate sector which includes high-rise housing and land development projects.
Considering the bigger impact on loan recovery, NRB has asked the BFIs to submit details about the loans that could be affected and status of the collaterals after the quake.

NRB spokesperson Min Bahadur Shrestha said that they have sought details about the damages to the collaterals and BFIs's own properties to take measures to ease loan recovery.
The BFIs have also started seeking details from the borrowers about the damages to the collaterals.
The devastating temblor has killed at least 7,557 people, including 41 Indians.