Weak banking culture stunts growth graph

Kathmandu, September 12 :

Despite tremendous growth potential and resources available in the country, the banking sector has not grown as per the expectations, thanks to weak banking culture in the country.

Bankers today said that of the total population, only 15.1 per cent people borrow from banks and the rest take loans from individuals or relatives that means majority of people continue to depend on traditional ways. Bankers also urged the government to take action against defaulters who are not willing to repay loans taken from banks.

Finance minister Dr Ram Sharan Mahat said that after the liberalisation of the banking system in 1990s, the financial system of the country has improved and a number of market instruments have been launched. The disappointing story is that banks have limited themselves to urban centers, said Dr Mahat.

He expressed concerns that agriculture on which the majority of the people depend for their survival, gets nothing from private sector banks despite. Banking experts also should fulfill social accountability and identify potential economic sectors for further investment, said Mahat.

Kenichi Ohashi, country director of World Bank, stressed on the need to look at the defaulters’ issue as this demonstrates that the Nepali market system offers a crooked playing field. Ohashi showed concerns that the poor have no access to credit, other than what they get from merciless money lenders at exorbitant rates.

“The rich have easy access to tens of millions, and at times hundreds of millions of rupees and many of them do not seem to feel they have to pay back. The poor debtor pays back even if that means he or she has to sell off everything he or she owns. However, the rich debtor continues to live in luxury, regularly rubbing shoulders with the politically high and mighty, and show up at glitzy functions.” The issue of banks’ huge outstanding loans is a question of survival for the market system in Nepal and not merely for banks, Ohashi said. “SPA leaders should resolve this defaulters’ issue seriously for better economic management of Nepal.”

Ohashi questioned whether the banking system been really a friend of the poor. He sees the future of Nepali banking industry on small and medium enterprises and bankers have to be friendly to such small and medium borrowers to sustain the future.

Governor of Nepal Rastra Bank (NRB) Bijay Nath Bhattarai stressed on fair competition in the banking sector. The governor urged to deal with the issue of defaulters collectively .

Bhattarai disclosed that the cash reserve ratio (CRR) of banks has to go down to three per cent from the earlier five per cent. We also need to gradually liberalise the capital account convertibility which India has also started working on, Bhattarai said.

Meanwhile, finance minister Dr Mahat also released a ‘code of conduct’ for NBA members.

Radesh Pant, president of Nepal Bankers’ Association (NBA), observed that the financial sector is becoming more competitive by the day. Compared to 1990s, the number of financial institutions has increased. Presenting a paper on ‘opportunities and challenges in the banking sector’, Pant said that the majority of financial institutions are registered in the capital. He said that deposit growth in banks has increased by 45 per cent compared to 1990s. At the same time, non-performing loans of the banking system has also increased, he said.

Some of the suggestions from NBA president are that there is a need to take greater initiative to improve the capital market, explore markets for investment, adopt measures to reduce NPAs, improve competitiveness for financial institutions by 2010, establish infrastructure development bank, recapitalise large banks and strengthen legal framework.