Slump In Real Estate Could Hurt Banks

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Dec. 20, 2010, 5:45 p.m. Published in Magazine Issue: Vol.: 04 No.-13 Dec.17-2010 (Poush 02,2067)
The slump seen in the real estate sector is set to hit hard the commercial banks as a considerable portion of their lending is exposed to the sector. In recent times, the prices of real estate in capital have come down by up to 30 percent.  According to bankers, this will start hitting the banks within a year. “Around half a dozen commercial banks and most of the financial companies have lent heavily in this sector. Their bad debts could escalate,” said a banker.  Some finance companies have given loans based on the value of real estate without considering the financial situation of the lender.  Currently, the total lending on land and housing sector is over Rs 85 billion. Earlier, following concerns raised by international agencies like International Monetary Fund (IMF), the central bank had issued guidelines asking the banks and financial institutions to limit their exposure to real estate.

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