Banking sector is going through credit crunch: Guv
KATHMANDU, JAN 17 -
Nepal Rastra Bank Governor Yubaraj Khatiwada said on Monday that the Nepali banking sector was going through a credit crunch as lending was growing far slower than deposits. The central bank’s latest statistics show that, over the last six months, deposits with commercial banks grew by Rs 63 billion while credit issue grew by just Rs 25 billion.
Khatiwada hoped that lending would increase gradually once banks start lowering their lending rates. “Investors are now in a wait-and-see mode. They are watching whether interest rates on lending will drop,” said the governor at an interaction on Monday. According to him, three factors are instrumental behind the current crunch in lending. First, banks are exploring new avenues for investment and hence are in transition. Second, since they have to maintain a comfortable credit-to-deposit ratio (CD ratio), they are not issuing loans despite having good liquidity. Third, they still fear a repeat of last year’s liquidity crunch.
According to the central bank, deposits with development banks grew by Rs 5 billion, but deposits with finance companies went down by Rs 2 billion. “Deposits with finance companies declined particularly due to institutional depositors diverting their deposits to commercial banks and development banks,” said Khatiwada.
Khatiwada added that institutional depositors moving away from finance companies was necessary as their concentration on institutional deposits was risky. “This has given finance companies a chance to increase public deposits,” he said.
Treating housing sector as industry
According to Khatiwada, the central bank is encouraging the development of the housing sector by treating it as an industry. “As housing development triggers a growth in the industrial sector especially construction materials, the central bank is committed to encouraging development of the sector,” said Khatiwada.
He also expressed hope that the estimated investment of Rs 20-30 billion in the housing sector would be recovered. “Currently, the market is in the phase of negotiating the pricing of housing units as it considers it is expensive,” said Khatiwada. He, however, expressed no sympathy for investors in land who wanted to make quick benefits by inflating land prices. “It is not any agenda for us,” said Khatiwada. Regarding the share market, he was hopeful that investors would respond positively to the share market after seeing the financial results of banks and financial institutions for the second quarter of this fiscal year. “I hope they will see the increased provisioning to some extent as a security guarantee,” he added.
Encouraged by merger
The governor seems to have been encouraged by the merger attempts of BFIs. The central bank has already given letters of intent (LoI) to 12 financial institutions for merger. “Four financial institutions are on the way to merging,” said Khatiwada. “About a dozen BFIs are holding discussions on going for merger.”
According to him, during the merger process, behaviour aspects such as adjustment of employees, rightsizing of employee numbers and benefits for those who have to leave the institutions are more complicated than financial issues. “That is why mergers are taking time,” he said.
Financial sector reforms in new form
With the much talked-about financial sector reform programme ending in December, the governor said that the central bank would continue the reform programme in a new way.
“Expanding financial inclusion, enhancing governance in the financial system, strengthening the supervisory capacity of the central bank and consolidation of the financial sector through mergers and other measures are priorities for the new round of reform measures,” said the governor.
He added that the central bank had not asked any single donor for package support for these tasks. “But talks are going on with the World Bank, Asian Development Bank and United Nations agencies to make financial sector reform a component of their wider support programme for Nepal,” he said.
The governor was positive about the outcome of the financial sector reform programme that ended last December which particularly sought to restore Nepal Bank and Rastriya Banijya Bank to health.
The decade-long reform programme could not attain its goal of turning the two banks healthy and privatizing them, but Khatiwada said the two largest banks are in a position to operate well.
Macro economy heading towards positive direction
According to Khatiwada, the country’s economic indicators are heading towards a positive direction with exports, balance of payments, foreign exchange reserves and inflation improving.
As of the first five months of the current fiscal year, exports grew 11 percent while imports surged 15 percent, according to NRB. “Imports soared mainly due to the high import of petroleum products and gold,” said Khatiwada. “Otherwise, imports of other goods have grown just 5 percent.”
According to him, exports of the country’s traditional export items—carpets, garments and pashmina—grew during the review period. The balance of payments, which was at a record high of Rs 46 billion as of the first four months, is expected to remain robust, according to Khatiwada. Foreign exchange reserves have also stood at record highs, according to the central bank.
Inflation, which remained at 8.5 percent as of the first four months of the fiscal year, is expected to come down further due to the seasonal factor. “Fresh harvests of paddy and rice have entered the market,” said Khatiwada. “This is also the season of vegetables.” He hoped that the negative growth in food inflation in India would also help lower inflation here.
Source: Kantipur
