Private sector lending grew by 5.6 percent in first seven months of current FY against the NRB’s annual target of 12.5 percent
KATHMANDU, March 12: Nepal Rastra Bank (NRB) is likely to miss its target of increasing private sector lending as the loans issued by the banks and financial institutions (BFIs) in the first seven months stood less than half of the annual target, mainly due to the BFIs’ sluggish lending rate amid ongoing economic slowdown.
The Current Macroeconomic and Financial Situation Report of Nepal for the first seven months of the FY 2024/25 unveiled by the NRB shows that the BFIs issued loans worth Rs 283.46 billion, a growth of 5.6 percent. In the same period last year, the private sector lending increased by 4.1 percent to Rs 197.21 billion.
Out of the total lending, 63.8 percent was issued to non-financial institutions while remaining 36.2 percent was taken by the household sector. Out of the increased proportion of private sector lending, commercial banks’ credit flow increased by 5.9 percent, while those of development banks and financial companies grew 3.1 percent and 5.2 percent, respectively.
Revised interest rate corridor system introduced
Last year too, the NRB aimed at increasing private sector loans by 11.5 percent. However, the achievement stood only at 5.8 percent. Despite missing its target in the last FY, the NRB through monetary policy announcement, raised this target to 12.5 percent for the current year.
Despite lowering their interest rates, the BFIs are unable to increase their lending due to low demand for loans amid low business confidence triggered by the ongoing economic slowdown. Commercial banks alone have reduced the average interest rate on loans to 8.55 percent from over 11 percent in a year.
Bankers said the BFIs are hesitant to issue more loans also due to the soaring bad debts and non-performing loans. “Citing the situation, the central bank has also tightened its noose in line, which has affected the lending by the BFIs,” said a banker.
Of the total lending, the BFIs’ loans on imports surged 69.5 percent. During the review period, the country’s import expense increased by 10.1 percent to Rs 988.59 billion.
Likewise, the loans against shares increased 27.76 percent to Rs 115.11 billion. Commercial banks increased their margin lending by Rs 22.78 billion, which accounted for a growth of 32.39 percent. According to analysts, investors are attracted to take more margin loans due to slow growth in real sectors of the economy.
Suman Pokharel, deputy chief executive officer of Global IME Bank, said the decline in interest rates of BFIs also helped attract the investors in the share market.
In the review period, the BFIs’ lending on manufacturing businesses increased by 9.5 percent, construction sector by nine percent, service sector by seven percent, transport, communication and public service sector by 6.7 percent and wholesale and retails by 4.4 percent.
