Banks facing hard times due to strikes
KATHMANDU, MAY 23 -
A series of recent strikes have made life harder for banks and financial institutions (BFIs) already suffering from increasing non-performing loans and falling profits. The latest banda called by the Nepal Federation of Indigenous Nationalities (NEFIN) and the Indigenous Nationalities Joint Struggle Committee (INJSC) has forced BFIs to shut down most of their ATMs and branches.
Banks have been struggling to carry out their daily activities due to the countrywide strike. According to bankers, daily transactions including deposit collection, lending and fund transfers have plunged 80-90 percent compared to the volume on normal business days.
“Although we have kept our offices open, no one is showing up due to lack of transport,” said Ashoke Rana, president of the Nepal Bankers’ Association. “Outside the Kathmandu valley, we have not been able to open our branches, and strike enforcers have forced us to shut down even the automated teller machines (ATMs).” Banda enforcers in Chitwan phoned us on Tuesday and told us to turn off the ATMs too, added Rana.
Bankers said that if the strike continues, they will have problems in hard currency management, especially in places where there is no office of Nepal Rastra Bank.
Bankers are now worried over the quality of their assets deteriorating if the bandas last for a long time. With less than two months remaining for the fiscal year to end, bankers said their borrowers might not be able to repay their loans as their businesses are suffering due to the strikes.
According to them, loans issued to the agricultural sector are the most vulnerable. “Since a majority of the farm products are perishable, producers face a direct loss if they cannot be sold on time,” said Sashin Joshi, chief executive officer of NIC Bank. “If they incur losses, they will be unable to service our loans at the end of the quarter directly affecting our balance sheet.”
The strikes are equally worrisome to banks involved in retail and microfinance lending. Such businesses have operational characteristics like a lower cash conversion cycle and reliance on daily sales and collections. Bankers say that the ongoing strikes have badly affected their daily operations.
“If they cannot operate on a daily basis, they will incur losses. Moreover, their loss absorption capacity is low,” said BN Gharti, deputy general manager of Kist Bank which has significant exposure in retail and microfinance lending. “In case such businesses face losses and are unable to repay our loans, the effect on our books will be unbearable.”
Source: The Kathmandu Post
