Nepalese access to formal banking on the up

KATHMANDU, MAR 15 -

A proliferation of banks and financial institutions (BFIs) in the last few years has done wonders to expanding the Nepali people’s access to formal banking channels.

The latest report of Nepal Rastra Bank (NRB) shows there was one BFI branch for every 11,753 people by mid-January 2012. The figure is a marked improvement on the Economic Survey 2010-11, which had shown a ratio of 17,800 people to a branch.

This increased access to banking channel is directly associated to the growth of BFIs branches.

As of first six months of the current fiscal year, the number of BFI branches sored to 2,265, of which 1,300 belong to commercial banks, 629 to development banks and 336 to finance companies.

Bankers terms the improvement in ratio of BFIs branch numbers to total population as remarkable. “In the past, there was no restriction from NRB to open branches irrespective of the geographical region which led to massive expansion drive,” said Ashoke Rana, president of Nepal Bankers’ Association. “This resulted in the better ratio of BFIs branches to number of people.”

Bankers say that the ratio will continue to improve in future too as BFIs will continue their expansion drive although the rate might not be as high as in the past.

“On an average one commercial bank establishes seven new branches each year,” said Rana. “It accounts for more than 200 branches by commercial banks alone.”

Increased access to formal financial sector, however, has not been symmetrical to geographical region, with 4,011 persons per branch in case of the Valley which alone boasts 626 out of the total 2,265 branches in the country.

People from the mountain region are less privileged, with ratio of 18,702 people to a branch. There are 96 BFIs branches in the mountain region. Similarly, the ratios in Tarai and Hill stand at 14,279 and 14,744 persons respectively per branch. 

Bankers attributed this concentration of BFIs branches at certain region to high population density and developed infrastructure in certain regions.

“In the mountain region, the population density is very low and infrastructure is poorly placed making branch operation difficult,” said Rana. “Even the penetration of micro-finance is lower at the mountain region.”

Also, the Valley tops the charts in terms of both deposit collection and credit flows. The Valley contributed 65.9 percent to the total deposits of BFIs, while it received 61.8 percent of credit in the first half of this fiscal year.

Rana said that to establish a branch, BFIs need infrastructure like internet, telephone and roads but they are not in place in many regions. “So, the government should first build infrastructure before expecting BFIs to open branches in those areas.”

Geographical Region    Population per branch

Tarai    14279

Hill    14744

Mountain    18702

Kathmandu Valley    4011

Average    11753

Source: Nepal Rastra Bank/ Kantipur