Credit growth plunges to four-year low

Kathmandu January 24- Credit growth fell to a four-year low in the first five months of the current fiscal year as the earthquakes of April and May and supply disruptions along Nepal-India border points reduced demand for loans.

Banks and financial institutions (BFIs) extended Rs 40.42 billion in loans in between mid-July and mid-December, down 55.95 per cent than in the same period of last fiscal year, show the latest data of Nepal Rastra Bank, the central bank.

The last time lending growth had slumped to this level was in the five-month period through December 2011. During that time, credit growth had fallen to Rs 19.18 billion, as the banking sector was about to recover from the liquidity crisis. As BFIs were short of cash at that time, lending rates had shot up to as high as 18 per cent, show NRB data.

The situation is not the same today. BFIs are currently sitting on top of piles of cash, as Nepalis working abroad are sending more and more money every day. In the first five months of the current fiscal, remittance income jumped by 19.4 per cent to Rs 271.37 billion.

As banks are flush with cash, lending rates have come down to as low as five per cent. Even though credit has become cheap, borrowers have not shown keen interest to expand investment because of unfavourable business climate.