Nepal | July 23, 2019

Auto sales dip as banks clamp down on loans

Himalayan News Service

Kathmandu, March 19

Vehicle sales have dropped in the recent months as the banks and financial institutions have been tightening auto loans amid the ongoing credit crunch in the country’s banking sector.

As more than 95 per cent of the vehicles are sold through financing, automobile dealers have said that clamping down on auto loans has put the entire auto industry at risk in recent months.

Moreover, the import of vehicles in the country has come down in the first half of the ongoing fiscal year, reflecting the impact of the current banking scenario in the automobile industry of the country.

As per the Department of Transport Management (DoTM), Nepal imported 201,747 units of vehicles in the first six months of 2017-18 against 208,454 units of vehicles imported during the same period in 2016-17.

Vehicle import seems to have fallen down especially in the recent months along with country’s financial sector being oriented towards liquidity crunch. Though monthly vehicle import stood at an average of 44,000 units in between mid-August and mid-November last year, vehicle import came down to 29,854 in between mid-November to mid-December and was further reduced to 17,660 from mid-December to mid-January.

It is to be noted, however, that September and October are regarded as peak seasons for vehicles sales due to festivals like Dashain and Tihar, when customers usually go on a buying spree.

“Vehicle sales are completely down as the banks have really squeezed auto loans. And even if a bank is ready to offer the financing facility, interest rates on auto loans have been raised to almost 15 per cent,” said Anjan Shrestha, president of Nepal Automobile Dealers’ Association (NADA), adding that automobile dealers are praying for the credit crunch situation to be addressed soon.

Shrestha also said that country’s automobile industry is bound to go down with the current mindset of the government, which has categorised the automobile industry as ‘unproductive sector’ for lending, despite the sector being one of the key revenue contributors.

Meanwhile, Janak Sharma Paudel, chief executive officer of Global IME Bank, said the capital cum deposit (CCD) ratio of banks stands at an average of 79 per cent and that most are operating in a tight position due to scarcity of fresh deposits. “In such a scenario, banks are unlikely to disburse new loans to industries unless the credit crunch situation is addressed,” he said, adding that the central bank should play a proactive role in coping with the current banking scenario.

A version of this article appears in print on March 20, 2018 of The Himalayan Times.

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