Nepal | March 28, 2020

Industries face problems getting loans

Himalayan News Service

Kathmandu, November 27

Industries and businesses have been facing problems in obtaining loans as the banks have been hit by an acute liquidity crunch. Banks have been floating small amounts of credit only to clients with good relations citing the liquidity crisis and this has been affecting economic expansion in the country, according to Hari Bhakta Sharma, president of Confederation of Nepalese Industries.

Industries and businesses approaching banks for credit have been returning empty handed. “None of the industrialists are thinking about expansion at present as they have been hit with this new challenge to run their enterprises,” as per Sharma. “Contribution of the manufacturing sector in the economy will be low in this fiscal if this situation prolongs.”

On the other hand, rising cost of production along with interest rate hike by banks will affect the consumers ultimately as the price of goods will increase and export products will be less competitive. More importantly, fluctuation of interest rate holds back investors from expanding their businesses.

“The entire problem of liquidity crunch is because of slow capital expenditure by the government,” Sharma asserted. “The government has been holding Rs 200 billion in its account and expenses are low.”  According to the Financial Comptroller General Office, the government’s capital expenditure in the first four months of this fiscal stands at just Rs 17.66 billion out of the total Rs 311.95 billion allocated for this fiscal.

Credit expansion of banks slowed down since the second quarter of this fiscal as the growth of credit outpaced deposit growth in the first quarter. “Deposit collection of commercial banks — class ‘A’ financial institutions — increased by around Rs 20 billion in the first quarter against credit expansion of around Rs 30 billion,” said Bhuwan Kumar Dahal, CEO of Sanima Bank.

Slowdown in remittances and low expenditure by the government caused sluggish deposit collection in this fiscal. “Banks have been struggling to maintain credit to deposit (CD) ratio as per the requirement of Nepal Rastra Bank as almost all are close to the upper limit of 80 per cent of CD ratio,” according to Dahal.

Operation cost of banks has increased as they have to collect deposits at a high interest rate to maintain CD ratio as around Rs 40 billion is going to be withdrawn from the banks as the first instalment of income tax needs to be submitted by mid-January. “Normally, demand for credit goes down when interest rates in credit go up and banks are not in a position to float more loans in this situation,” said Dahal.

According to the financial statements of the commercial banks for the first quarter, almost all banks except government owned Rastriya Banijya Bank are close to the upper limit of CD ratio as provisioned by the central bank.


A version of this article appears in print on November 28, 2016 of The Himalayan Times.


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