Demand for loans falls by 1.63 pc

KATHMANDU:

Credit expansion of banks and financial institutions contracted by 1.63 per cent in the first 10 months of the current fiscal year, as lack of business opportunities and little growth experienced by the real sector lowered demand for loans.

In the period between mid-July 2013 and mid-May 2014, banks and financial institutions extended Rs 132.12 billion in loans as against Rs 134.31 billion recorded in the same period last fiscal, the latest macroeconomic report of Nepal Rastra Bank (NRB) shows.

The drop in credit growth was reported at a time when the economic growth rate has picked up and lending rates have fallen.

Average lending rate of commercial banks came down to 10.82 per cent in mid-May from 12.40 per cent recorded in mid-July 2013. In the same period last fiscal, lending rates had hovered around 12.50 per cent throughout the year and even went up to 13.28 per cent in mid-August 2012.

At a time when economic growth rate is expected to top 5.15 per cent this fiscal — the highest since 2007-08 — and lending rates have fallen, the demand for loans should have automatically gone up. But that has not happened.

“There is very little demand for loans these days as there are not many business opportunities. Also, the real sector has not expanded

at a desired pace, which has limited credit growth,” CEO of Grand Bank Nepal, Parshuram Kunwar Chhetri, said.

Currently, trading is one of the few sectors which is creating demand for loans, as the country is heavily reliant on imports, and most of the remittance income is being used to finance these bills.

In the period between mid-July 2013 and mid-May 2014, banks and financial institutions extended Rs 37.24 billion in credit to the wholesale and retail sector, as against Rs 31.89 billion in the same period last fiscal, shows the NRB report.

Of late, the construction sector is also fuelling demand for loans due to gradual revival in the real-estate business.

Credit of Rs 18.20 billion was extended to the construction sector between mid-July and mid-May, with the biggest chunk of Rs 14.48 billion going towards residential construction.

In the same period last fiscal, banking institutions had provided Rs 11.03 billion in loans to the construction sector of which Rs 9.55 billion had gone to residential construction.

Credit growth rate also picked up in the production sector this fiscal, due to higher demand for loans by iron, steel, cement, alcohol and tobacco manufacturing companies.

In the first 10 months of the current fiscal, the production sector borrowed Rs 30.10 billion from banks and financial institutions, as against Rs 26.84 billion in the same period last fiscal.

This was largely due to extension of Rs 6.62 billion in loans to cement manufacturing companies, Rs 5.02 billion in loans to iron and steel plants, Rs 1.45 billion in loans to tobacco manufacturing companies and Rs 1.03 billion in loans to the alcohol manufacturing companies.

Among others, lending to agricultural and services sectors also went up.

Despite higher demand for credit in these sectors, overall credit expansion fell this fiscal because of lower demand for credit by transport, communication and public services sector and consumer loans.

Demand for consumer loans, for instance, fell to Rs 4.99 billion in the 10-month period from Rs 7.97 billion in the same period last fiscal, while transport, communication and public services sector borrowed only Rs 2.07 billion from banks and financial institutions in the first 10 months, as against Rs 6.66 billion in the same period last fiscal.

Likewise, metal productions, machinery and electrical tools sector took a credit of Rs 1.21 billion from banks and financial institutions in the 10-month period, as against Rs 3.68 billion in the same period last fiscal.

Source: THT