28pc fall in banks’ credit flow to private sector

KATHMANDU, JUL 01 -

Power crisis, protracted political stalemate and a slowdown in trading business have hit banks and financial institutions’ (BFIs) lending to the private sector.

The growth rate of banks’ credit flow to the private sector has declined by almost 28 percent, according to the latest macro-economic report of the Nepal Rastra Bank. As of the first 10 months of this fiscal year, BFIs’ credit flow to the private sector increased by Rs 64.24 billion, compared to the rise of Rs 81.84 billion during the same period last year.

Liquidity-rich BFIs also acknowledge that the demand for loans from corporate clients have slowed down considerably. “NRB statistics show the current misery of BFIs — struggle for lending. It is a credit crunch,” said Anal Raj Bhattarai, chief executive officer of Nepal Commerz and Trust Bank. “There has been little demand for loans from both industrial and trading sector this year.”

Bankers say credit demand from industries like cement, iron and steel, which require more energy, has slowed down due to power crisis. These industries are one of biggest clients of banks. “Due to power shortage, these industries are not running in their full capacity,” said Upendra Poudel, CEO of NMB Bank. “On the other hand, sales of consumer goods have not grown, affecting credit demand from trading sector as well.” Importers of electronics, automobile and readymade garment products have been complaining about low sales in recent days. Given these importers are major clients of BFIs, poor sales also resulted in low credit demand from importers, bankers say.

Bankers say continued depreciation of the Nepali rupee against the US dollar is another factor affecting credit flow, especially to the trading business. Importers are in wait and see mode as an appreciating dollar has made them rethink their plans to open letters of credit for fresh imports.

Bankers also attribute low credit demand to weak business confidence in the country. “Despite decreasing interest rates, banks are finding it hard to lend,” said Bhattarai, adding that interest rates on prime loans has come down to 10 percent from 13 percent. “I don’t think a further decrease on lending rates is the solution to the problem.” Bankers do not see the situation improving anytime soon. “People will rethink their investment plans as the country headed towards political uncertainty following the dissolution of the Constituent Assembly,” said Poudel.

The recession in lending will also affect profits of BFIs this year as lending is their biggest profit maker. Banks are also not willing to invest in NRB’s treasury bills due low returns — below 1 percent. “This means, banks’ profits will be severely affected this year,” said Poudel.

Source: http://www.ekantipur.com/2012/07/01/business/28pc-fall-in-banks-credit-flow-to-private-sector/356438/