Kathmandu. In recent times, the construction of houses in the private sector has been accelerating and road and infrastructure projects have also increased at the government level. This activity of the construction sector is driving the country’s overall economy. With the expansion of private sector investment, there has been a significant increase in the flow of credit from banks and financial institutions.
Current fiscal year 2081. Loans disbursed to the private sector increased by 7.3 per cent between Mid-July and Mid-April 2018. According to the NRB, credit flow has increased by 12.3 percent, especially in the construction sector. A total of Rs 5,526 billion loans have been disbursed during this period. Which is significantly higher than the same period last year.
Housing loans from banks at cheaper interest rates have also increased investment towards the construction of individual houses. Compared to last year, the economy has become more active this year. As a sign of this, the credit expansion in the construction sector, which started from a negative situation in July last year, has increased by mid-April. The loan amounted to Rs 207 billion as of Mid-July last year, which has crossed Rs 233 billion by mid-April.
According to analysts, the gradual fall in interest rates and the reactivation of the construction sector is driving the economy. At the same time, the construction sector seems to be a priority for the investment of banks and financial institutions.
Commercial banks have taken the lead in lending to the private sector. During this period, commercial banks increased lending by 7.4 percent, finance companies by 6.5 percent and development banks by 4.1 percent.
Credit demand improves as interest rates fall
The increase in credit demand has also had the effect of falling interest rates. According to nrb data, the average interest rate on commercial bank loans has come down to 8.11 per cent till April 2018. Which was 10.34 percent in the previous year. Interest rates of development banks and finance companies have also decreased by 2-3 percent compared to the previous year.
Although the monetary policy for the current fiscal year has set a target of 12.5 percent growth in credit flow to the private sector, the progress of 7.3 percent in just 10 months is less than the target. This situation has been seen in the past years as well, which is a sign that the expected pace of credit flow is still challenging.
