Number of blacklisted firms, individuals rises

KATHMANDU, FEB 17:

The number of firms and individuals blacklisted by the Credit Information Bureau (CIB) has surged following the downsizing of default limit to Rs one million.

Since Nepal Rastra Bank (NRB)’s decree to blacklist borrowers defaulting on loans as less as Rs one million back on November 25, 134 firms and individuals have been blacklisted in the last two and a half months. The number of blacklisted since the beginning of the current fiscal year stands at 338. In fiscal year 2011-12, only 305 firms and individuals were blacklisted by CIB.

NRB’s circular had directed financial institutions to blacklist defaulted loans worth Rs one million or more. According to the earlier regulation, the floor was fixed at Rs 2.5 million. More than half of those blacklisted are individual borrowers.

Since the beginning of fiscal year 2011-12, some 1,814 firms and individuals have been blacklisted by CIB for defaulting on loans. Among them, 642 have still been unable to clear their debts.

A slowdown in the realty and housing business is the cause for the rapid expansion of the blacklisted. Among the existing blacklisted companies, there are 25 housing and land developing companies listed by CIB for not repaying loans. Likewise, there are 14 investment companies that are in list due to stock-related debt.

Both share prices and housing sector were over-leveraged due to easy credit being provided by banks during their peak between 2008 and 2010. High returns made investors and realty developers seek loans at a higher interest rate but once both the markets started to plunge, the number of defaulters grew at an exponential rate.

As stock investment and the land business stopped yielding high returns, those who had over-leveraged for short-term gains on land have suffered the most in recent times.

“Borrowers have to pay high interest rates of more than 14 per cent, so it is really difficult for us to meet the payments while the market is still struggling,” pointed out one housing developer who has been dodging being blacklisted by selling housing units at a lower price. The unfavourable investment climate along with the political uncertainty have also led to an increment in loan defaults in Nepal.

Being blacklisted makes the borrower — any person or firm — ineligible for acquiring or rescheduling any new loan from any financial institution — not even a credit card. Such blacklisted people also cannot be a guarantor for other loans. Moreover, they also become ineligible to be a director of any publicly listed company.

Source: THT