Massive demand for central bank’s refinance facility from pandemic-hit sectorsTourism entrepreneurs have been at the forefront in applying for the Rs200 billion facility.
C N Pandey, a tourism entrepreneur, was paying an interest of 9.5 percent to a private bank on the loan he took for his Landmark Forest Park Resort at Sauraha, Chitwan.
But after he availed of the central bank’s refinance facility of around Rs70 million for a year at 5 percent, it provided some relief to him.
“This is a small relief for me because it helps to reduce the interest rate that I have been paying to the bank,” Pandey, executive director of the Hotel, told the Post.
Under the refinance facility, interest to be paid to the banks is subsidized by the central bank as it provides funds to commercial banks equivalent to the amount that they had provided loans to targeted borrowers at interest rates in the range of 1 to 3 percent. The commercial banks, in turn, can take a maximum interest rate of five percent from borrowers under their existing loans.
The central bank, through the monetary policy 2010-21 had announced a massive refinance facility for businesses considered to have faced the most severe impact from Covid-19. According to the Nepal Rastra Bank, the sectors that have been worst affected and the sectors which have faced middle-level impact can apply for the facility.
According to bankers, there is a massive demand for the refinance facility. “Most banks have already received requests to refinance loans whose amount is already more than the threshold set by the central bank,” said Bhuvan Dahal, president of the Nepal Bankers’ Association, a grouping of the commercial banks’ chief executive officers. “It is the same case in my bank too.”
A total of over Rs200 billion is available for refinancing in the current fiscal year. Of this amount, 70 percent will be provided in bulk by the central bank as per the requests for loans through commercial banks while 20 percent through a case by case basis and the remaining 10 percent of the bulk to borrowers using microfinance institutions.
Landmark Forest Park Resort is among the nearly two dozen enterprises that have so far received refinance facilities under the case by case basis and an enterprise can get up to Rs200 million refinance facility.
“Under the window of providing refinance facility on a case by case basis, we have already provided the refinance facility amounting to Rs3.87 billion for around 20 borrowers,” said Dev Kumar Dahal, chief of bank and financial institution regulation department at the central bank. “Enterprises related to tourism, pharmaceuticals and hydropower have so far received the refinance facilities.”
According to him, the central bank has received requests for refinancing from around 150 borrowers under the window where the central bank provides a refinance facility on a case by case basis.
Under the bulk category, banks and financial institutions have been collecting applications from borrowers after the central bank extended the deadline of seeking the facility till mid-October from September end. Under this scheme, a borrower can get up to Rs50 million in a refinance facility.
Dahal, who is also the chief executive officer of Sanima Bank said that requests for refinance facility have surged as it would allow the borrowers to pay less in interest than what they have been paying currently.
“I think all of the over Rs200 billion refinance facility that the central bank has aimed to provide will be mobilised,” he said.
Ashoke Rana, chief executive officer of Himalayan Bank has a similar observation. “There is a massive demand for a refinance facility, particularly from the hotel sector,” he told the Post, without specifying how many requests were received.
As per the central bank directive, the refinance facility could be made available through the commercial banks based on the calculation of their core capital. Core capital of commercial banks stands at around Rs480 billion.
As per the central bank directive, the refinance facility can be extended to up to 25 percent of the core capital of a bank under the bulk refinance category.
Tourism entrepreneurs have been at the forefront in making requests for the refinance facilities. “Most hoteliers of Pokhara, one of the country’s key tourism hotspot, have also sought refinance facilities,” according to Bikal Tulachan, president of Pashchimanchal Hotel Association. “But, provision of getting the facility appears to be complicated. So, I am not sure whether all the affected hoteliers will be able to get the facility.”
Tourism entrepreneurs, however, said that considering the massive adverse impact on the tourism sector by the pandemic, the refinance facility alone would not be enough to revive the sector.
During the nearly four-month-long lockdown that ended on July 21, on an average 61 percent of total industries were closed completely, according to the Nepal Rastra Bank study. But, 91 percent of hotels and restaurants were closed completely while seven percent of them were partially closed. Only two percent of them were fully operational during the time.
Even after the lockdown was lifted, the hotel and restaurant sectors are hardly getting any guests as people are rarely travelling as tourists.
Pandey said their demand was that they should get complete interest rate waiver and should get working capital to resume the operation of hotels once the situation normalises.
“Our expenditure in maintaining our hotel facilities is higher than the interest subsidy we get from the central bank under the refinance facility,” he said.