Owning fixed property and automobiles has always been a desire for most people, and this aspiration is now within reach as most banks have been providing easy loans to fulfill this wish. As a result, lending in this segment, which had entered a gloomy phase a few years ago, has started witnessing an upward trend.

Nepal Rastra Bank (NRB) figures show that the realty business has started picking up since 2014-15 with a surge in property lending. As per the central bank, real estate loan issue rose 5.64 percent to Rs63.87 billion in 2014-15. Loans jumped 30.8 percent to Rs83.60 billion in 2015-16. According to the data released by the central bank, real estate loans swelled 5.91 percent in the one-month period from mid-June to mid-July in the last fiscal year.

Likewise, hire purchase loans more than doubled during the period 2012-13 to 2015-16. Loans provided to purchase vehicles make up the largest portion in hire purchase lending. Hire purchase lending increased to Rs79.566 billion from Rs34.09 billion during the period. According to NRB statistics, lending in the segment grew significantly in the last fiscal year. There was a rise in hire purchase lending by 46.25 percent in 2015-16.

Bankers said that both property loans and auto loans, which had suffered a slowdown after last year’s earthquake and during the Indian economic blockade, were on a rebound. Upendra Poudel, chief executive officer of NMB Bank, said lending in these sectors started heading upward after India lifted the four-and-a-half-month-long economic blockade. “Lending has increased also because banks have started offering loans at reduced interest rates, notably on real estate and hire purchase loans,” he said.

According to Poudel, a number of banks have been focusing on retail banking, in particular, personal loans. “At a time when banks are awash in excess liquidity, they have become attracted to making reasonable earnings through lending in sectors that have a relatively low risk,” said Poudel.

As per bankers, banks have been providing financing up to 80 percent to buy vehicles at interest rates as low as 4.5 percent per annum. Similarly, banks have been providing financing up to 60 percent to purchase property at an interest rate of 6.5 percent per annum. Poudel said banks had become attracted to retail loans also due to the high margin they can secure in the segment. “Compared to corporate loans, retail loans ensure a high margin,” he added.

Bhuvan Dahal, chief executive officer of Sanima Bank, said they were also issuing more loans to buy homes and land due to a surge in demand.

Currently, NRB has imposed a 25 percent cap on property loans on amounts over Rs10 million. Similarly, the central bank has maintained a 10 percent ceiling on loans to buy land for plotting. However, there is no such restriction on home and land loans of up to Rs10 million. “This has also increased the volume of loans being provided to small investors to buy property,” said Dahal. 

With changing lifestyles and continuing expansion of the road network, mainly in the Kathmandu Valley and major cities across the country, demand for private vehicles has also been rising year by year. According to bankers, excess liquidity within the banking industry, lack of ample lending avenues and a relatively short loan periods are the major reasons behind the banking industry’s increasing attraction towards automobile financing.

Diwakar Poudel, head brand and marketing and corporate affairs at Standard Chartered Bank Nepal, said a fall in interest rates, launching of diverse vehicles ranging from entry-level to high-end models and simplification of the process to borrow money had helped loan demand in the segment to go up. Apart from easy financing and low interest rates, another reason for the upward trend in auto loans is the longer repayment period offered by banks and financial institutions (BFIs). “The relaxation in the repayment period has also contributed to the growth in sales.”

Earlier, most BFIs were offering a repayment period of five years. With growing demand for auto loans, most BFIs have increased the maturity period by two to three years.

Records of the Transport Management Office, Bagmati show that registrations of new vehicles in Bagmati zone jumped 77.46 percent to 29,794 in the last fiscal year. Similarly, 74,465 two-wheelers were registered in fiscal 2015-16 compared to 63,386 in the previous year.

With the start of the earthquake reconstruction process, there has been a rise in sales of heavy equipment such as cranes, dozers, excavators and loaders. As per the Transport Management Office, 863 pieces of heavy equipment were registered in the last fiscal year. Meanwhile, registrations of heavy vehicles like trucks, tippers, tankers and containers doubled to 2,240.

Poudel attributed the surge in home loans to lower bank interest rates and the end of unusual situation triggered by the Indian trade embargo. “Many property builders who were stymied by constantly changing government standards and building codes have been encouraged to resume their projects due to the issuance of clear government policy,” said Poudel, adding that they had been offering home loans at interest rates as low as 6.5 percent per annum and auto loans at 7 percent interest per annum.