Credit flow to private businesses grew only 3.8 percent in the last fiscal year, compared to 13.1 percent in the previous fiscal year.

BFIs issued loans of Rs 52 billion to purchase automobiles and parts.

KATHMANDU, August 20: Lending by banks and financial institutions (BFIs) to the private sector slowed in the last fiscal year due to the economic slowdown that severely affected private sector businesses during the period.

The current macroeconomic and financial situation of Nepal for fiscal year 2022/23, as unveiled by Nepal Rastra Bank (NRB), shows that private sector lending by BFIs increased by 3.8 percent in the last fiscal year. In the previous fiscal year, the growth rate in this segment was 13.1 percent.

The shares of private sector credit from BFIs to non-financial corporations and households stand at 62.7 percent and 37.3 percent, respectively, during mid-July 2022 and mid-July 2023. These shares were 63.3 percent and 36.7 percent a year ago.

In the review year, private sector credit from commercial banks, development banks, and finance companies increased by 3.5 percent, 7.6 percent, and 0.6 percent, respectively. BFIs mostly lent out their credit based on the collateral of land and buildings. According to NRB, BFIs provided 68 percent of their outstanding credit by taking collateral of fixed assets. The percentage of loans issued against current assets was only 11.6 percent.

Outstanding loans of BFIs to the agriculture sector increased by a mere 6.8 percent, despite the government’s announcement of prioritizing the sector. The growth of credits in the industrial production sector stood at 8.3 percent, while transportation, communication, and the public sector grew at 21 percent. The wholesale and retail sector grew at 3.9 percent, and the service industry sector grew at 3.7 percent.

BFIs' lending in real estate and hire purchase also significantly shrank in the review period. The real estate loan (including residential personal home loans) was only 5.6 percent, while hire purchase loans were only 1.3 percent. According to government records, property transactions sharply declined due to the economic recession. Additionally, the sector was adversely affected by the government's policy to categorize land along with imposed land plotting restrictions.

Likewise, banks’ loans for the purchase of automobiles dropped as the central bank banned imports of luxury items, including expensive four-wheelers, which had an effect for almost six months of the last fiscal year. Consequently, lending for automobile purchases declined to Rs 3.69 billion (a 6.6 percent drop) to Rs 51.90 billion.

Similarly, credits for automobile parts and fittings stood at Rs 35.96 billion, a 4.5 percent drop compared to the previous fiscal year's amount. Dhruba Thapa, president of the Nepal Automobiles Dealers’ Association, said the import ban along with stern provisions implemented by NRB led to the decrease in the purchase of automobiles and parts from abroad.

Of the private sector lending, BFIs issued 67.7 percent in overdrafts, 13.2 percent in working capital loans, 6.2 percent in trust receipt (import) loans, and 5.2 percent in margin loans.

 
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