Banks in the soup with housing loans

Nearly 38 per cent of the loans extended to the housing sector by commercial banks have become classified amidst a noticeable slowdown in real-estate business for the last couple of years.
Bankers are now deeply worried about the future of the money their banks have invested in the sector.
According the central bank statistics, the total outstanding bank loans of country's real-estate sector was Tk. 355 billion until December 13, 2013. Of the amount, Tk. 81 billion was found to be bad, Tk. 32 billion substandard and Tk. 21 billion doubtful.  The amount of bad loan to the sector was Tk.50 billion only a year back and Tk. 40 billion in December 2011.
The volume of substandard and doubtful loans--the two stages preceding to a loan becoming bad--also surged in keeping with the rise in the volume of bad loans.
Bankers and realtors said the 2010 share-market crash and its cascading impact and ebbing remittance inflow were the main barriers facing the realtors' business.
They also cited the fall in businesses of multipurpose societies as a contributory factor for the situation.
The number of buyers belonging to the upper-middle-income group like doctors, and high-salaried officials of multinational corporations has remained more or less stable. But, they said, what has hurt the real-estate business most is the decline in the number of expatriate buyers.
People in the real-estate business said they target mainly expatriates, middle-income people and investors in the share market to boost their business.
They said the slow recovery of the US economy coupled with the prolonged recession in Europe has induced a sharp fall in the property business at home.
Bangladeshi expatriates and middle-income people were the main clients of the sector when it had experienced a boom period between 2005 and 2010, they said.
The boom-time zeal snowballed fast in the country's major cities and many people with lack of adequate knowledge in the business also invested in it.
A top official at the country's largest private commercial bank, Islami Bank Bangladesh Ltd (IBBL), appeared to be worried over the situation with the overall bank loans to the housing sector.
 "All the commercial banks are facing hurdles in business for the last couple of years for multifarious reasons. Now gradual increase in bad loans in the housing sector might worsen the situation further," managing director (MD) of IBBL Mohammad Abdul Mannan told the FE.
He claimed that his Islamic bank had a smaller amount of such dud money lent out to the sector as it monitored strictly the lending operations.
The MD also claimed that the IBBL provided loans to the real- estate sector mostly through personal level instead of firms. And it has 'saved' the bank from further strains, he said.
Ali Reza Iftekhar, Managing Director and CEO of Eastern Bank Limited, said the government should immediately make a move to increase transactions in the real-estate sector.
"Loans in the housing sector have become a headache for the bankers as they neither can recover the money invested from the realtors nor seize the flats or plots as there are no customers to buy those," he added.
He said many commercial banks are rescheduling the loans with lump-sum down payments.
 "In this situation, only government's initiative can save both bankers and realtors."
Meanwhile, data with the Real Estate and Housing Association of Bangladesh (REHAB), a group of 1,200 realtors, show more than 22,000 ready flats remaining unsold for long for varied reasons.
"This is the highest number of unsold flats in the country's apartment business since the 80s," said General Secretary of REHAB Md. Wahiduzzaman.
He told the FE that the situation had started deteriorating after the share-market debacle and Destiny scam. The high interest on bank loans and prolonged halt in gas and electricity connections also had a negative impact on the housing business, he said.
"Government should immediately announce block allocation of funds at single-digit interest."
"Besides," Wahiduzzaman added, "the authorities should also permit investment of undisclosed money in the housing sector without any question from other agencies."
Such a desperate remedy he sees as sine qua non for saving hundreds of thousands of direct and indirect dependants on this sector.