Bank lending down 50pc as borrowers await election

KATHMANDU, OCT 26 -

Lending by bank s during the first two months of the fiscal year was half of last year’s figure even though the budget was issued on time and bank s and financial institutions (BFIs) have adequate liquidity.

According to Nepal Rastra Bank’s (NRB) report on the country’s macro economy published on Thursday, BFIs lent Rs 12.75 billion during the review period compared to Rs 25.89 billion in the same period last year.

The central bank said that loan issues by commercial bank s inched up 0.9 percent. The figure for development bank s was by 3.3 percent and finance companies 3.3 percent. Bankers said that demand for credit in recent days had fallen sharply with borrowers awaiting the Constituent Assembly election scheduled to be held on Nov 19.

NRB Spokesperson Bhaskarmani Gnawali said that BFIs should try to attract borrowers with attractive packages instead of grumbling that there is no demand. “Besides slower credit flow to the private sector, the government and government-owned institutions too have been borrowing less,” added Gnawali.

A drop in demand for loans and a surge in liquidity has prompted many BFIs to buy treasury bills issued under the reverse repo mechanism at a discount rate (interest rate) of as low as 0.025 percent recently. Reverse repo means bank s purchasing treasury bills from NRB to reduce their bulging cash reserves.

Loans issued to the much prioritized industrial sector increased by just Rs 2.67 billion against Rs 5.39 billion during the same period in the last fiscal. The productive sector includes agriculture, energy, tourism and cottage and small industries as per NRB’s definition.

Credit to the agriculture sector also decreased by Rs 0.46 billion although commercial bank s are required to increase lending to agriculture and hydropower to 10 percent of their total portfolio within this fiscal year and to 12 percent by mid-July 2015.

Meanwhile, deposit mobilization during the review period increased by Rs 11.50 billion, which is slightly up from the growth of Rs 6.15 billion during the same period in the last fiscal. Commercial bank s increased their deposits by 0.9 percent while development bank s and finance companies saw their deposit collection rise 2.7 percent and 3.2 percent respectively.

According to the NRB report, inflation registered a sharp drop to 8 percent from 11.2 percent during the same period before. However, it is a little higher than the 7.9 percent recorded in the first month of this fiscal.

The central bank attributed inflation remaining in the high single digits to a surge in food prices. Dearer non-food items due to a stronger US dollar were also expected to affect inflation greatly.

The NRB report said that food prices remained at 9.4 percent while non-food items witnessed a price rise of 6.8 percent. “Due to heavy dependence on India for trade, the rise in the US dollar didn’t have a big impact on overall inflation,” said Gnawali.   India accounts for more than 65 percent of Nepal’s foreign trade.

Despite a timely budget this year, government expenditure remained slow at just Rs 19.71 billion during the first two months compared to Rs 21.4 billion last year. As a result, the government treasury had cash reserves amounting to Rs 35.44 billion.

Meanwhile, Nepal’s trade deficit increased little in the review period due to a relatively better growth in exports and slower growth in imports. The total trade deficit during the first two months grew 12.8 percent to Rs. 86.50 billion compared to a 33.5 percent jump last year.

The country’s merchandise exports went up 8.6 percent to Rs 15.16 billion in the first two months from Rs 13.97 billion last year.

However, imports also increased 12.1 percent to Rs 101.66 billion against a rise of 29.7 percent last year.

Similarly, the balance of payments recorded a surplus of Rs 33 billion during the two months against a surplus of Rs 5.52 billion during the same period last year.

Source: The Kathmandu Post