Commercial bank lending swells despite massive hits to economyCommercial banks issued more loans in the last fiscal year 2015-16 than in the previous year as businesses charged ahead, overturning predictions of an economic disaster due to prolonged political unrest and a four-and-a-half-month-long blockade by India.
Commercial banks issued more loans in the last fiscal year 2015-16 than in the previous year as businesses charged ahead, overturning predictions of an economic disaster due to prolonged political unrest and a four-and-a-half-month-long blockade by India.
Belying fears of a ruined investment environment following the twin misfortunes coming on the heels of a killer quake in April, bank loans swelled by Rs281 billion last year compared to Rs202 billion in the previous year.
Moreover, bankers said they encountered no difficulty in recovering loans from businesses even though they are believed to have suffered massive losses as they could not import merchandise or industrial raw materials for months due to the blockade.
The Central Bureau of Statistics has also estimated Nepal’s economic growth at just 0.77 percent in the last fiscal year.
“Of course, lending slowed during the blockade, but credit flow picked up after the embargo ended,” said Upendra Poudel, president of the Nepal Bankers’ Association (NBA). “Banks have not encountered problems in recovering loans.”
Banks which have unveiled their financial results for the last quarter of fiscal 2015-16 have reported good profits leading to share prices of banks shooting up on the stock market.
According Poudel, this shows that Nepal’s economy is very resilient to such events. It has gone through political upheavals in recent years and emerged with its economy intact, all because of remittance, he said.
As per the NBA’s data, nearly three-quarters of the lending took place in the second half of the last fiscal year when the blockade began to loosen and eventually ended.
The NBA said 74 percent of the total loans, or Rs208 billion out of Rs281 billion, were issued in the second half of the fiscal year.
This is a marked change from the previous fiscal year when 37 percent of the bank loans were extended in the second half of the fiscal year, according to the NBA.
Poudel said that people rushed to get bank loans right after the blockade ended for their backlog of investment needs, leading to a surge in credit in the second half.
Bankers said that the industry had a total piled up lending of Rs50 billion in the first half, and all the loans were taken in the second half.
Sanima Bank’s Chief Executive Officer Bhuvan Dahal believes inflation also increased the loan requirement for borrowers.
“Increased reconstruction activities such as rehabilitation of hydropower projects, office buildings and private houses and a rise in demand for loans from manufacturers of construction materials also swelled lending,” he said.
According to bankers, a rise in real estate and share prices also enabled people to borrow more due to the increased value of their collateral.
Meanwhile, banks witnessed tighter liquidity in the second half, particularly in the third quarter of the last fiscal, due to increased cash outflows. Industrialists said the growth in lending in the last fiscal year was a result of increased financing for import and distribution financing.
“Despite prolonged disruptions at the border points, most imports surged except petroleum products which indicates where bank financing is going,” said Hari Bhakta Sharma, president of the Confederation of Nepalese Industries (CNI). The economy saw increased cash flow due to remittance which soared after the earthquake, and most of this money was used in consumption, he said.