Nepal’s car dealers are unhappy that banks have curbed auto loans just when sales were beginning to recover from the Covid-19 disaster that dragged on for two years.

Bankers say that the country is in the midst of a liquidity crisis, and cash is hard to come by for auto or any kind of credit.

Dhurba Thapa, president of the Nepal Automobile Dealers’ Association, said that banks and financial institutions started decreasing their exposure in auto loans from last October. “Now, they have almost totally stopped lending money to buy cars.”

Thapa said that almost everybody borrows from their banks to buy cars. "Nearly 90 percent of car buyers take auto loans while the figure for two-wheeler buyers is 60 percent."

According to Thapa, auto sales plunged by 30 percent after credit tightened. “We were hopeful of a recovery in sales, but the current situation does not bode well.”

Most of the banks with whom the Post talked to said they have not totally stopped loans to the auto sector, but they have other priority sectors to serve.

“Apart from six to seven banks whose credit-deposit ratio is below 90 percent, the others are not in a position to issue auto loans,” said Anil Kumar Upadhyay, president of the Nepal Bankers’ Association.

"Banks normally clamp down on loans when their credit-deposit ratio crosses 90 percent," he said.

“Only six banks have money to make investments. And even among them, two are nearing 90 percent credit-deposit ratio,” said Upadhyay, CEO of Agricultural Development Bank.

“Moreover, the government has discouraged investments in imported goods, and motor cars are among them," Upadhyay said.

During the first seven months of fiscal 2021-22 ended mid-February, goods imports soared by 42.8 percent to Rs1,147.46 billion, up from a 0.01 percent increase a year ago, according to Nepal Rastra Bank.

Imports of petroleum products, medicine, crude palm oil, crude soybean oil, transport equipment, vehicles and parts have swelled.

The central bank says that the current account, which measures the country’s earnings and spending abroad, showed a deficit of Rs413.86 billion during the review period compared to a deficit of Rs104.39 billion during the same period of the previous year.

Gunakar Bhatta, spokesperson for Nepal Rastra Bank, said that banks are under immense pressure due to a liquidity crunch, and so they have not been able to provide loans in the auto sector. “They are not investing in other sectors either.”

Banks can provide loans after studying their portfolio and available cash, but observing the current situation, it is not easy for them to invest in the automobile sector, Bhatta said. “We have not issued any circular to stop auto loans.”

In November 2018, the government had revised the loan-to-value ratio on auto loans for private vehicles to 50 percent from 65 percent. With the provision, customers were required to make a 50 percent down payment of the value of the vehicle, which was 35 percent earlier.

“The past provision continues to hurt the automobile sector. Now the government has imposed several measures to curb imports, and this has hit the auto sector particularly,” said Thapa.

Last December, Nepal Rastra Bank unveiled another new policy making it mandatory for importers to keep 100 percent margin amount to open a letter of credit (LC) to import 10 types of listed goods.

Importers of motorcycles, scooters and diesel-powered private automobiles have to keep 50 percent margin amount. The central bank has decided to discourage the import of these goods considering that they are “non-essential”.

Motorbike and scooter buyers are paying the cost of the government’s rules as prices have increased sharply, auto dealers say.

"The central bank directive has slashed auto imports by more than half because traders are not in a situation to open LC following the new margin provision," Thapa said.

With things the way they are, automobile dealers do not see much cause for excitement about Nepali New Year sales, the second most important holiday shopping season after the Dashain and Tihar festivals.

Thapa said the liquidity crisis would ease after the elections slated for mid-May as the market could be awash in cash with all the campaign spending.

According to the Trade and Export Promotion Centre, vehicle imports jumped by 29.9 percent to Rs69.15 billion in the first seven months of the current fiscal year.

Traders say that the higher import value is a result of cars becoming more expensive, and does not reflect an increase in volume.