Himalayan News Service

Kathmandu, June 28:

For an individual with a regular income, owning a house is no longer a distant dream in Nepal.

Boom in consumer finance in recent years is leading to a change in urban living patterns and rapid growth in the purchasing power of the middle-class people. The prolonged conflict in the country still remains as the major hindering factor for long-term project financing, critically increasing credit risks. This has left no choice for commercial banks to seek alternative haven where there is less risk. Rapid urbanisation is what most of commercial banks are cashing in on with products that help meet the need of people. Houses and automobiles have become two important and viable sectors in which banks are investing money. Recent figures show that the real estate business, especially in urban areas, is doing very well. Competitive interest rates on housing loans and loans that cover more than the cost of house are proving to be an irresistible combination for middle class people with stable earnings.

The equated monthly installment (EMI) repayment method with repayment period of up to a maximum of 20 years has also been a driving force. Between most commercial banks and financial institutions, there is a cutthroat competition for this segment of the market, which is ultimately benefiting customers. The competition resulted in cutting down interest rates as well as other features associated with such loans. Though interest rates vary from bank to bank, the purposes of house loan are common — purchase of a house or apartment, construction, renovation/ extension, and purchase of land. Till four to five months back, private sector banks and financial institutions were the only players. But entry of the two largest public sector commercial banks, Nepal Bank Ltd and Rastriya Banijya Bank, in the consumer financing sector, has added fuel to the fire. Though these two banks also brought similar products, house loan and auto loan, their interest rates are more competitive compared to other commercial banks. “The response has been tremendous. RBB has lent over Rs 300 million since it started investing in retail lending four months back,” says Janardhan Ach-arya, spokesman at RBB.

Though investment-wise, retail lending is not so big, this has certainly helped to ease liquidity as well as diversification of banking services, he said, adding that the such products have repositioned the bank’s image as well. “Banking services are not meant for the elite only. Today, a fast growing mass of middle-class population cannot be ignored,” Sharma said.

RBB is offering house loans at an interest of 7.5 per cent to 10 per cent per annum up to a maximum period of 20 years. Nepal Industrial & Commercial Bank recently introduced its much-acclaimed scheme ‘NIC Ghar Subidha’, which the bank claimed, is unprecedented in Nepal. The interest rate of 6.99 per cent on refinancing and 7.49 per cent on new loans, offered by the bank is the lowest one as of now under the house loan scheme. NIC Bank is providing up to 110 per cent money for construction and renovation with a maximum loan repayment period of 20 years. The total loan amount ranges from Rs 5 million to Rs 15 million. Recognising the value of offering a wide range of services not only to the corporate but also to individuals, Himalayan Bank Ltd (HBL) has been aggressively offering various consumer loans as required by individuals, helping people realise their dreams, says Sabina Dangol at HBL.

According to her, HBL house loan ranges from Rs 0.5 million to Rs 3.5 million, the maximum repayment period being 15 years. However, the loan amount could go up depending upon the value of collateral and disposable income of customer. Lumbini Bank Ltd (LBL) is also eyeing the market and planning to introduce house loans with refined features very soon. “Although there is a fierce competition, there is still a charm in the sector,” says Lokendra PN Pradhan, chief manager at LBL. Under the scheme, the bank plans providing loans of up to Rs 10 million for a maximum period of 15 years. The interest rates will be ranging from eight, nine to 10 per cent for five, 10 and 15-year repayment period respectively, informed Pradhan. The present boom in consumer financing, especially house loans, is expected to continue in coming days, too. Construction will certainly continue to grow, whatever might be the country’s economy, the only different will be its pace.