Credit demand picks up of late

Kathmandu February 6- Credit demand is gradually picking up in the country, as the situation is normalising in many bordering areas, increasing cross-border trade.

In the period between January 1 and 29, 30 commercial banks extended Rs 27 billion in loans, show the latest data of Nepal Bankers’ Association (NBA). This amount is 35 per cent of Rs 77 billion in credit issued by banks since the beginning of this fiscal year in mid-July.

“In the last one month, there has been an uptick in credit demand because the situation in the bordering areas appears to be getting better. With this, demand for trade-related loans, such as letters of credit, has gone up. Also, developers of hydroelectric projects are now seeking fresh loans, as the fuel crisis is gradually easing,” said Sanima Bank CEO Bhuvan Kumar Dahal, adding, “Even demand for consumer loans is picking up, with people showing renewed interest to purchase cars and houses.”

Bankers like Dahal are eagerly waiting for the supply situation to completely normalise as they are sitting on top of at least Rs 115 billion, which could be immediately extended as loans.

Banks are currently flush with cash because of the rise in the flow of remittance income.

In the first five months of the current fiscal year alone (mid-July to mid-December), Nepalis working abroad sent home Rs 271.37 billion — up 19.4 per cent than in the same period of last fiscal year.

This has pushed up deposit level at banks to Rs 1,572 billion as of January 29, show the NBA data. Of this deposit, Rs 1,468 billion is in local currency.

Nepal Rastra Bank, the banking sector regulator, allows banks and financial institutions to extend up to 80 per cent of the sum of local currency deposit and core capital (capital fund) as loans.

The capital fund of commercial banks stood at Rs 150.05 billion as of mid-December. If local currency deposit is added to this amount, the sum comes out to be Rs 1,618.05 billion.

This implies commercial banks can convert at least Rs 1,294.44 billion — 80 per cent of Rs 1,618.05 billion — into credit. But as of January 29, only Rs 1,179 billion was extended in loans.

This means banks are sitting on top of a whopping Rs 115.44 billion that could be immediately converted into loans.

Banks have a big chunk of loanable funds because credit demand has fallen since the devastating earthquake struck the country in April.

As Nepal was recovering from the disaster, supply disruptions triggered by the blockade on Nepal-India border points hit the country, which reduced trade volume and imports of capital goods, raw materials and petroleum products.

“Lately, the condition seems to be getting better. If supply situation normalises completely, we will definitely see further rise in credit demand,” Dahal said. Source:THT