Financial sector 'moderately' affected

KATHMANDU, June 25:

Despite the massive devastation caused by the earthquake of April 25 and aftershocks thereafter, government officials and bankers say the earthquake had 'moderate' impact on banking and financial sector.

While the Post Disaster Needs Assessment (PDNA) report estimates the damages and losses of the financial sector at Rs 31.91 billion, stakeholders say the loan losses of the bank and financial institutions (BFIs) can be minimized by offering loan restructuring and other facilities.

The cost of potential loan loss of BFIs stands at Rs 16.54 billion, according to PDNA. Total credit expansion of the BFIs in the first eight months of 2014/15 is Rs 1.25 trillion.

"While it may take time for recovery, none of the loans affected by the earthquake require full compensation. It seems that most of the loans can be recovered by the respective BFIs. The need is the facilities like restructuring, refinancing, rescheduling or reclassification of such affected loans," Min Bahadur Shrestha, spokesperson of NRB, told Republica.

Shrestha said that the earthquake is less likely to make significant impact on balance sheet of the BFIs. "Though profit of the BFIs in the current fiscal year may go down as compared to the previous fiscal years, it may not be a significant fall," he added.

Bankers also say that the banking industry is likely to suffer from the slowdown in economic activities more than the damages and losses due to the earthquake. "Most of the loans affected by the earthquake can be recovered if there are some facilities from the central bank, including more relaxations in the provisioning, restructuring as well as other incentives," Upendra Poudyal, president of Nepal Bankers Association, told Republica.

"However, the earthquake has caused damage in other sector also which may slow down economic activities of the country. Loan expansion of BFIs is already declining while the cost of the fund is increasing for them. The banking system is again grappled with the liquidity surplus. These all factors are going to affect the balance sheet of BFIs," he added.

Meanwhile, PDNA report has estimated that banking sector will need Rs 33.4 billion, including Rs 6.5 billion for reconstruction works, for recovery. It has also laid down three-pronged strategy for the recovery of damage and losses in the banking and financial sector: financial sector stability, access to finance, and economic recovery and finance.

Diagnosis of the impact of real estate losses in the affected areas on BFIs and insurance companies, restructuring of loans, recapitalization fund, insurance product development and technical assistance, effective regulation and supervision of savings and cooperatives and refinancing facility to support the recovery of households, among others, are the strategies that PDNA has put forth for recovery of the sector.

Source: Republica