Credit expansion has not picked up pace since the beginning of the fiscal year. While deposits increased by 433 billion in seven months, only 1.5 billion rupees of credit flowed.
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Banks and financial institutions have not been able to expand their credit as expected for the past seven months (Shrawan to Magh). The economy has remained stagnant due to lack of economic activity, which has led to a lack of credit demand. Bankers say that there has been no improvement since the beginning of the fiscal year.
Although the impact of the Israel-Iran war has begun to be seen in Nepal’s market, it has not yet been seen in the financial system. As Chaitra is the last month of the third quarter, banks have focused on loan recovery and loan demand has not increased as expected, said Santosh Koirala, President of the Nepal Bankers Association. ‘It cannot be said that the overall loan demand has increased if 2/4 loans increase. Because it is the last month of the third quarter, banks are mostly focused on loan recovery,’ he said, ‘Deposits are increasing. But loan demand has not increased.’
Although the impact of the Israel-Iran war has begun to be seen in Nepal’s market, it has not yet been seen in the financial system, Koirala said. ‘Looking at the activities of other countries, including neighboring countries, the Nepali economy does not appear to be immune to the impact of the Israel-Iran war,’ he said, ‘However, the banking sector has not been affected immediately.’
Banks and financial institutions have collected deposits of Rs 433 billion in the last seven months (Shrawan to Magh). This is an increase of 6 percent compared to the same period last year. With this, the total deposits of banks and financial institutions have reached Rs 7697.59 billion as of last Magh. In the seven months of last year, deposits in banks and financial institutions increased by 3.8 percent, or Rs 245.34 billion. According to the data of the Nepal Rastra Bank, deposits in banks and financial institutions increased by 14.9 percent in mid-Magh 2082 on an annualized basis.
As of mid-Magh 2082, the share of current accounts in the total deposits of banks and financial institutions is 6.5 percent, savings 42.8 percent and fixed deposits 41.6 percent. In the seven months of last year, such shares were 5.2, 34.8 and 52.4 percent respectively. Similarly, in mid-Magh, the share of institutional deposits in the total deposits of banks and financial institutions is 34.3 percent. In mid-Magh 2081, the share of such deposits was 35.3 percent.
In the last seven months, banks and financial institutions have disbursed loans worth Rs 221 billion 840 million. This is an increase of 4 percent compared to the same period last year. With this, the total loans disbursed by banks and financial institutions as of last Magh has reached Rs 5719 billion 540 million. According to the National Bank, in the seven months of the last fiscal year, loan flow increased by 5.6 percent or Rs 283 billion 460 million.
Year-on-year, credit flow has increased by 6.8 percent till last Magh. This year, the Rastra Bank has set a target of credit expansion by 12 percent. Experts say that with only about four months left for the end of the fiscal year, credit will expand only to 6/7 percent of the target at most.
Devendraraman Khanal, Chief Executive Officer of Rastra Banijya Bank, argues that there have been ample signs of an increase in credit demand in banks in recent weeks. ‘In discussions with other bankers, it is also seen that credit will increase in the coming days,’ he said. ‘In the case of Rastra Banijya Bank, credit demand has also increased.’ Our branches are requesting to increase the existing limit of loan approval.’
Looking at the current situation, Khanal said that the pace of credit expansion is likely to increase in the coming months. According to the data of the National Bank, out of the loans flowing from banks and financial institutions to the private sector, the share of loans flowing to the non-financial institutional sector was 62.6 percent and the share of loans flowing to the individual and household sector was 37.4 percent in mid-Magh 2082. In the same period of the previous year, such shares were 63.8 percent and 36.2 percent, respectively.
In the seven months of the current fiscal year, the growth rate of loans flowing to the private sector was 4.2 percent for commercial banks, 3 percent for development banks, and 1.8 percent for finance companies.
Out of the loans invested by banks and financial institutions in mid-Magh 2082, 15 percent was secured by current assets (agricultural and non-agricultural goods). 63.8 percent was secured by real estate collateral. In mid-Magh 2081, the share of loans flowing against such collateral was 14.4 percent and 65.1 percent, respectively, according to the data of the National Bank.
