Opportunities are growing in banking

But with the recent mergers and acquisitions, the number of such organizations is now 112. Of them, 20 are commercial banks, while 17/17 are development banks and finance companies. There are 57 microfinance financial institutions. An infrastructure development bank is operational.

There is more presence in Wagmati province and less presence in Karnali province. In the banking system, more than 61 trillion rupees of deposits have been collected and about 51 trillion worth of loans have been disbursed. The loan-to-deposit ratio is around 80 percent. The data shows that the size of the country's economy is around 53 trillion and 81 billion, while deposits and credit utilization are more.

Despite past developments in the financial sector, there is a history of ups and downs in terms of liquidity at different times. This situation continues to occur due to the cyclical effects of the economy. During the period of covid-19, when there was a slowdown in the economy, investment slowed down. At that time, Central Bank (Rashtra Bank) made a policy decision and tried to facilitate by providing re-loan, covid loan. Analyzing the post-Covid pandemic as a 'new normal', investment increased. However, because the economy could not link investment with production, quality credit investment could not be expected. It created a deposit crisis. But when some problems appeared in shadow banking, deposits continued to flow to the licensed institutions, while banks also increased interest rates to encourage deposits, so liquidity became easier. New areas for investment did not emerge in the

economy. As the existing industries could not operate at their full capacity, the loan demand decreased. Due to the lack of growth in entrepreneurship, there was no demand for credit in the new sector. Thus, due to the cyclical effect, the demand for loans seems to be low at present. These are the main reasons for relatively low credit growth even though the loan interest rate is low.

During the 6 months of the current financial year, deposits increased by 3.77 billion, while loans increased by 1.92 billion. Loan demand has not increased as expected. The issue is somewhat complicated as the country currently has historically high foreign exchange reserves. Remittance inflows have reached a monthly high. This has further increased the liquidity flow as net foreign assets increase. Which has led to a positive increase in bank deposits. The idea of ​​the banking system is to provide low-cost financial resources to the economy by reducing the interest rate on deposits by reducing the base rate and reducing the interest rate on loan investments. This seems to encourage credit investment in the banking sector.

However, economic dynamism in other sectors of the economy appears low. The 'turn over' of existing businesses has not increased. In this situation, the demand for loans is low. However, due to the fact that the Aadhaar rate is currently decreasing, and some policy flexibility has been maintained after the review of the monetary policy, it seems that credit investment will increase in the coming days. But rather than increasing loan investment, banks should not go into aggressive loan investment as the interest of depositors' liquidity is to be protected through quality loan investment.

challenges in the banking sector

The banking sector currently has both opportunities and challenges. The challenges are to maintain the quality of assets, to target Nepal's banking towards universal banking, to maintain digital literacy and security, to prevent the flight of deposits, to retain skilled employees while analyzing the data of people leaving bank jobs and even going to foreign jobs, to recover bad loans, to have productive loans according to the targets set by the central bank. Delivering, maintaining the credibility of the banking sector is a major challenge. Today's challenge is to maintain quality and digital financial literacy, qualitatively expand financial access, expand banking services in new areas according to the 'Blue Ocean Strategy'.

According to the purpose for which the loan was invested, the non-performing loan increased as the loan principal, interest and installment could not be recovered within the specified time. Internal management of banks is also responsible for this. But more than that, cyclical effects of the economy seem to be responsible. Due to lack of timely capital expenditure from the public sector, difficulty in paying the principal and interest of the loans taken by the construction industry from the bank, laxity in the real sector, overall demand not expanding, when one sector remains weak, the other sector dependent on it could not show economic activity. So the bad debt increased.

It is not possible to predict that bad loans will increase in the future. Because some glimmers of hope are beginning to appear. The current situation is due to the imbalance between the size of the economy and the ratio of credit to investment. Banks also competitively put balance sheet expansion as the first goal, but quality has certainly been less focused. But this situation will not last for a long time because it is not unreasonable to expect that the situation of liquidity in the country will increase, the cost of financial resources will decrease and the economic activity will expand and active credit will expand.

There is more presence in Wagmati province and less presence in Karnali province. In the banking system, more than 61 trillion rupees of deposits have been collected and about 51 trillion worth of loans have been disbursed. The loan-to-deposit ratio is around 80 percent. The data shows that the size of the country's economy is around 53 trillion and 81 billion, while deposits and credit utilization are more. 0

There is more presence in Wagmati province and less presence in Karnali province. In the banking system, more than 61 trillion rupees of deposits have been collected and about 51 trillion worth of loans have been disbursed. The loan-to-deposit ratio is around 80 percent. The data shows that the size of the country's economy is around 53 trillion and 81 billion, while deposits and credit utilization are more. 1

There is more presence in Wagmati province and less presence in Karnali province. In the banking system, more than 61 trillion rupees of deposits have been collected and about 51 trillion worth of loans have been disbursed. The loan-to-deposit ratio is around 80 percent. The data shows that the size of the country's economy is around 53 trillion and 81 billion, while deposits and credit utilization are more. 2

There is more presence in Wagmati province and less presence in Karnali province. In the banking system, more than 61 trillion rupees of deposits have been collected and about 51 trillion worth of loans have been disbursed. The loan-to-deposit ratio is around 80 percent. The data shows that the size of the country's economy is around 53 trillion and 81 billion, while deposits and credit utilization are more. 3