Kathmandu, January 22

Credit growth fell to a four-year low in the first five months of the current fiscal year as the earthquakes of April and May and supply disruptions along Nepal-India border points reduced demand for loans.

Banks and financial institutions (BFIs) extended Rs 40.42 billion in loans in between mid-July and mid-December, down 55.95 per cent than in the same period of last fiscal year, show the latest data of Nepal Rastra Bank, the central bank.

The last time lending growth had slumped to this level was in the five-month period through December 2011. During that time, credit growth had fallen to Rs 19.18 billion, as the banking sector was about to recover from the

liquidity crisis.

As BFIs were short of cash at that time, lending rates had shot up to as high as 18 per cent, show NRB data.

The situation is not the same today.

BFIs are currently sitting on top of piles of cash, as Nepalis working abroad are sending more and more money every day.

In the first five months of the current fiscal, remittance income jumped by 19.4 per cent to Rs 271.37 billion.

As banks are flush with cash, lending rates have come down to as low as five per cent.

Even though credit has become cheap, borrowers have shown keen interest to expand investment because of unfavourable business climate.

“Almost every sector, from manufacturing and construction to tourism and agriculture, has been affected by protests in the Tarai and the fuel crisis,” said Sanima Bank CEO Bhuvan Kumar Dahal.

One of the sectors that has been badly hit is production, which consumes 18.3 per cent of the total loans extended

by BFIs.

Credit growth in this sector slumped by 93.68 per cent to Rs 1.37 billion in the five-month period, as most of the manufacturing units shut down their operations or drastically reduced their production.

Even wholesale and retail sector, which contributes to 21.50 per cent of total lending, suffered in the first five months of the current fiscal. Lending growth in the sector fell by 83.28 per cent to Rs 3.89 billion during the review period.

Demand for loans to finance trade generally goes up during August and September when importers start placing orders for Dashain, the biggest festival of Hindus in the country.

However, in those two months this year, LCs worth mere $377.19 million were issued, as against $1.04 billion in the same period last year, marking a drop of 63.73 per cent.

Also, construction sector, which consumes around 11.2 per cent of the total loans, saw 65.15 per cent fall in credit growth to Rs 4.66 billion in the five-month period, as fuel shortage prevented operation of heavy equipment, such as dozers, and other machinery at construction sites.

“Although the scenario in the five-month period remained grim, positive changes were witnessed in the sixth month of this fiscal year, with demand for loans gradually picking up,” Dahal said.