Elated bankers expecting favorable business climate

The expectation that the promulgation of new constitution will put the country on the path of economic development has elated bankers. They believe the end of the political transition following the promulgation of new constitution will increase the demand for loans from the private sector that will be more willing to make investment once business climate becomes favorable." "Promulgation of new constitution heralds a new beginning for the economic sector. Policy stability is one of the pre-conditions for investment which we were lacking in the absence of stable government, political direction and constituti"n," Upendra Poudyal, president of Nepal Bankers Association, told Republic". "Now we are hopeful that the promulgation of new constitution will pave way for policy stability which will boost investment in the count"y." He also said increased economic activities will create demand for bank loans. Excess liquidity (loan-able amount) that has grappled banking industry for the past few years also highlights the sufferings of BFIs. Country's liquidity surplus currently stands at Rs 60 billion. Excess liquidity is largely attributed to lack of demand for loans from the borrowers who are reluctant to start or expand their businesses due to political and policy uncertainty in the country. Due to liquidity surplus against the backdrop of low demand for loans, BFIs have been parking their funds in various instruments of central bank on a little more than zero percent interest rate." "The promulgation of new constitution will open up new avenues for investment. BFIs will also get opportunities to finance new projec"s," Poudyal, who is also the CEO of NMB Bank, said. Poudyal, however, notes that loans and advances of BFIs is increasing in recent years, albeit slowl". "If we see the data of last few years when the country entered into a political course after the peace process began, economic activities and loan flow of BFIs have increased. This will get a significant boost if the country ensures further policy stabili"y," he added. Data of Nepal Rastra Bank (NRB) shows that loans of BFIs jumped by 19.8 percent, or Rs 221.61 billion, in the last Fiscal Year 2014/15. Such growth was 18.7 percent, or Rs 176.14 billion, in 2013/14. In the review year, private sector credit from commercial banks, development banks and finance companies, increased by 22 percent, 16 percent and 0.4 percent, respectively. According to the report, credit to production sector increased by Rs 32.89 billion (14.8 percent), compared to a rise of Rs 32.10 billion (16.8 percent) in the previous year. Likewise, credit to construction sector increased by Rs. 33.31 billion (27.9 percent), the wholesale and retail trade sector by Rs 53.23 billion (21.8 percent), and the transportation, communication and public service sector by Rs. 12.75 billion (27 percent) during the review year. However, credit flow to private sector had declined in last two fiscal years compared to 2012/13 when loan flow had increased by 20.8 percent (Rs 161.92 billion). Bhuvan Dahal, CEO of Sanima Bank, also shares similar views with Poudya". "Many investors were in a wait-and-watch mood for making investment in the lack of stable political climate. The end of political transition with the promulgation of new constitution will unleash immense economic potentials in the count"y," said Dahal. The plan to increase paid-up capital will also help BFIs to invest aggressively in large-scale project". "NRB has increased the capital floor which will also increase the capacity of BFIs to finance bigger projects in the wake of the favorable investment climate set by the promulgation of the new constituti"n," Trilochan Pangeni, spokesperson of NRB, said. Source: Republica