Himalayan News Service

Kathmandu, March 28:

Owning a house and a car is no longer a distant dream for an executive in Nepal. The boom in consumer finance in recent years is attributed to changing consumption patterns of middle class people and their increasing purchasing power. Rapid urbanisation is what most of the commercial banks are cashing in on with floating such products that help meet the need of people. House and vehicles have become two important and viable sectors in which banks are investing money. Recent figures show that the sale of automobiles recorded a two-digit growth in the past five years and the real estate business, especially in urban areas, is also doing much better. Competitive interest rates, alongwith over 70 per cent of the total cost, is an offer that middle class people with stable earnings find difficult to resist. However, the schemes or offers that different banks are offering focus mainly only on two areas, housing and vehicle financing.

Unfavourable situation to invest in big projects like hydropower, infrastructure and long-term development projects has led most commercial banks to find a safe haven. And, retail lending is what most of commercial banks are finding safe. The short-term investment sector with a minimum risk has been a great draw. Everest Bank Ltd (EBL) is one of the key players and also known for pioneering consumer finance, as it introduced home loans in Nepal in 2001. Retail lending by EBL stands at the third position with 20 per cent of the total loan portfolio, following the investment in manufacturing sector of 35 per cent and trading sector with 21 per cent. Keshab Raj Paudel, corporate credit manager of EBL, said EBL provides house loan up to 80 per cent of total cost with 20 years of repayment period at the interest rate of 8 to 9.5 per cent per annum.

Car loan does not need any collateral as the car itself is registered in the bank’s name, however for educational loan, the customer has to keep 100 per cent collateral equivalent to the sum of loan. Though the Bank of Kathmandu (BoK) entered into consumer financing some four years back, the bank has come up with a full spring on retail lending recently with diversified products. Recognising the value of offering a wide range of services not only to the corporate but also to individuals, BoK has been aggressively offering various consumer loans, helping people realise their dreams, says Ajay Shrestha, assistant general manager at BoK.

BoK’s consumer finance is focussed on real estate and auto loan. Besides, the bank also provides educational loan and loan for foreign employment.

According to him, vehicle loans hold 50 per cent and home loans have about 25 per cent of total consumer lending. More than 600 customers have benefited so fat from various retail lending schemes from the bank. Interest rates on vehicle loans vary from 7.5 per cent to 10.5 per cent, housing loan is charged with 9.5 per cent interest per annum. The average loan size for consumer finance is estimated to be Rs 1.5 million. Entry of the two largest public sector commercial banks Nepal Bank Ltd and Rastriya Banijya Bank, in the consumer financing,

has added steam to the banking sector. Though these two banks have also joined the areas of house loan and vehicle loan, their interest rates are competitive and less than other commercial banks. Home loans by both these banks interest rate is 7.5 per cent, whereas auto loan by NBL is at an annual interest rate of 6.5 per cent, which is 0.5 per cent less than RBB’s offer. These banks have also announced to offer educational loans to deserving candidates.