Credit to pvt sector up by 11.2pc
KATHMANDU, FEB 26:
Credit floated by financial institutions to the private sector has jumped notably as a significant rise in imports has fuelled the demand for trade financing.
The first half of the current fiscal year has seen credit to the private sector expand by 11.2 per cent. A year back‚ loans floated by financial institutions to the private sector had increased by 6.5 per cent.
By mid-January‚ 2013‚ financial institutions have provided loans worth Rs 900 billion to the private sector‚ according to banking statistics of Nepal Rastra Bank (NRB).
In the last six months alone‚ financial institutions have floated more than Rs 100 billion for private enterprises.
The current surge in credit to the private sector is due to the growth in trade financing. Imports rose by 25.2 per cent to Rs 271.35 billion in the first half of the fiscal year.
Likewise‚ loans such as trust receipt loan‚ working capital loan and overdrafts meant to finance trade have also surged in the period. The amount of such loans floated by commercial banks has increased by almost 33 per cent in the first half of the fiscal. Though these loans are not exclusively for traders only‚ they are a preferred financing source for traders.
“Lending by banks to manufacturing and industrial sectors is still not generous‚ though
interest rate rise seems to have abated since the past couple
of months‚” said vice president of Federation of Nepalese Chambers of Commerce and Industry Pradeep Jung Pandey‚ adding that lending to the private sector has apparently
gone up due to increased financing to trading.
In the previous two fiscal years‚ lending by financial institutions to the private sector
had expanded at a marginal rate‚ raising concerns over the economy. Earlier‚ the lull in expansion of credit to the private sector by the financial institutions was attributed to high interest rate and discouraging investment climate.
“The appreciation of the dollar has increased the import bill of traders‚ which has further inflated the amount lent‚” informed Pandey who is also chairman of Citizens Bank International.
At present‚ no production or manufacturing unit is profitable as the private sector is bogged down by perennial power shortage leading to escalated cost of production.
Trading on the other hand has become a beneficial enterprise as buying goods from one place and selling it in another with a profit margin is less risky in the current situation.
“Though trading could be a money minting business with minimal risk‚ concentration
of economic activities around trading is not considered to
be favourable to a economy in the long run‚” pointed out senior economist Prof Dr Biswambher Pyakurel.
Expansion in credit enhances the capacity of consumers to spend more‚ and of businesses to invest more.
Increased consumption and investment creates jobs and
expands income and profits‚ thus inspiring faster growth in the economy.
“Credit to productive sectors such as manufacturing and infrastructure that create jobs propel growth‚ but expansive credit to sectors such as trading that mostly fuels consumption does not have the same desirable effect‚” he added.
Source: THT
