Bank lending jumps three-fold as borrowers regain appetite

As borrowers regain their appetite for loans, banks and financial institutions (BFIs) recorded almost three-fold jump in credit outflow in the first quarter of this fiscal year amid normalisation in Nepal-India trade and pressure to expand business in line with the expansion of capital base. BFIs extended Rs96.6 billion in credit in the three-month period between mid-July and mid-October, as against Rs33.4 billion in the same period a year ago, shows the latest macroeconomic report of Nepal Rastra Bank (NRB), the central bank. “The lending expansion comes on the back of sharp hike in credit demand from the private sector and consumers following the end of the trade blockade [imposed by India, which disrupted supplies of petroleum products, raw materials and daily essentials, hitting consumption hard in the country],” said Sanima Bank CEO Bhuvan Kumar Dahal. In the first quarter of the last fiscal year, the country was still trying to recover from the devastating earthquakes of April and May, 2015, reducing appetite for loans. But as the country was trying to rise from the rubble of the quakes, India imposed a trade embargo in the fourth week of September 2015. The blockade, which prolonged for over four and half months, again sapped demand for loans, as industries operated at far lower capacity than in normal days and infrastructure developers either postponed construction plans or slowed down the pace of construction. “A big fall in credit demand in the first quarter of the last fiscal year caused the base to shrink. That’s why credit growth rate has surged this year,” Dahal said. Of the different sectors, wholesale and retail sector, for instance, borrowed Rs20.7 billion in the first quarter, as against Rs6.5 billion in the same period a year ago, shows the NRB report. Wholesale and retail sector accounts for 22.2 percent to the total credit portfolio of all BFIs. Also, borrowings from the production sector, which accounts for 17.4 percent of the total loans extended by banks and financial institutions, soared by 200.6 percent in the three-month period to Rs13.2 billion. The construction sector, on the other hand, which makes up 10.9 percent of the total credit portfolio of all banks and financial institutions, borrowed Rs10.7 billion in the first quarter, up 228.6 percent than in the same period last year. Despite sharp hike in credit disbursement, average lending rate has not gone up this year. In October 2015, average lending rate of commercial banks stood at 9.46 percent, shows the NRB report. That rate came down to 8.62 percent in October of this year. One of the reasons for this is competition among banks to expand business, as many have replenished their capital to meet the central bank’s new minimum paid-up capital requirement. “Lately, banks and financial institutions are under pressure to grow their businesses, as many have started increasing their capital stock in line with NRB’s instruction,” Dahal said. NRB has directed commercial banks to raise minimum paid-up capital from existing Rs2 billion to Rs8 billion within mid-July 2017. Other financial institutions also need to raise their minimum paid-up capital in line with NRB’s instruction. Source: ekantipur