Nepal | January 20, 2020

Credit disbursement in automobile sector down by 85 per cent in first quarter

Himalayan News Service

Kathmandu, November 24

Loan disbursement in the automobile sector has come down by 85 per cent in the first three months of the current fiscal year hinting a recession in the domestic automobile market.

As per the statistics of Nepal Rastra Bank (NRB), banks and financial institutions disbursed credit amounting to Rs 665 million in the first quarter of fiscal 2019-20 against Rs 4.75 billion loan floated in the sector in the same period of the previous fiscal.

The government’s policy to curb import of luxurious goods including vehicles, which is intended to curb the ballooning trade deficit of the country, seems to have directly affected the automobile sector as both the flow of loans from BFIs and the demand for new vehicles among consumers has come down drastically in recent months, as per automobile dealers.

In September last year, the central bank in line with the government’s policy to curb import of luxurious goods, had lowered the ratio of loan to value of vehicles purchased (loan-to-value ratio) to 50 per cent from the existing 65 per cent which meant that automobile purchasers were made to compulsorily pay Rs 1.5 million down payment while purchasing a car whose value is Rs three million.

The central bank’s decision to squeeze financing facilities in the automobile sector was basically to control the growing import of vehicles, especially luxury vehicles, in recent years.

The central bank’s decision to squeeze auto financing also aimed to address the credit crunch scenario in the market by controlling capital flight as a large chunk of money goes abroad while importing vehicles.

Anjan Shrestha, former president of Nepal Automobile Dealers’ Association (NADA), said that the government’s policy to squeeze import of automobiles has seriously affected the automobile business in the country.

“The decision to lower the ratio of loan to value of vehicles purchased has discouraged customers from purchasing new vehicles as customers will have to foot a huge chunk of money as down payment to purchase a car. The automobile business this year is down more than 40 per cent compared to the previous year,” said Shrestha.

Similarly, BFIs are also reluctant to issue loans in the automobile sector as the government treats the sector as unproductive, as per automobile dealers.

Meanwhile, the overall credit disbursement of BFIs in different sectors has come down in the first quarter of the ongoing fiscal year. Though BFIs had floated Rs 174.6 billion credit in the first quarter in fiscal 2018-19, they have disbursed only Rs 123.4 billion loan in the first quarter this fiscal year.


A version of this article appears in print on November 25, 2019 of The Himalayan Times.


Follow The Himalayan Times on Twitter and Facebook

Recommended Stories: