Kathmandu. Although interest rates are falling every month, banks have not been able to increase loans compared to that. In recent times, the impact of interest rates on credit growth has been minimal as banks have focused more on loan recovery than on loan expansion.
According to the economic and financial situation report of the nine months of the current fiscal year, the credit flow from banks and financial institutions to the private sector has increased by Rs 361.3 billion during this period. Credit expansion has increased by only 7.1 percent compared to last June.
Loans worth Rs 5,167.17 billion were extended as of June 2018, which increased by 7.1 per cent to Rs 5,534.77 billion by Mid-April. In the nine months of the last fiscal year, the loan to the private sector increased by Rs 222.21 billion.
Bankers say they have not been able to increase the loan compared to the reduction in interest rates. At the same time, due to the capital fund pressure of some of them banks, the loan is not being expanded.
On the one hand, when the demand for loans is decreasing, banks have focused on recovering rather than increasing loans. As a result, credit flow growth seems to have increased only at a slow pace.
The weighted average interest rate on loans of commercial banks has come down from 10.55 per cent in March 2080 to 8.22 per cent in March 2081. This shows that interest rates on loans are falling every month. However, the loan has not increased accordingly.
In July 2018, the weighted average interest rate on commercial bank loans was 9.68 per cent, while private sector lending increased by 0.3 per cent.
In August, the interest rate was 8.06 per cent, while credit flow increased by 1.4 per cent. The weighted average interest rate on commercial bank loans was 9.33 per cent in September, while credit growth was 2.5 per cent. In October, the rate of interest was 9.07 percent, while the growth rate of credit was 2.5 percent.
Similarly, the average interest rate on loans was 8.9 percent in November, while the loan expansion increased by 3.5 percent. Loan growth was 5.2 per cent when the interest rate was 8.69 per cent in December, 5.6 per cent when the interest rate was 8.55 per cent in January and 8.4 per cent in February.
Rastra Bank has projected 12.5 percent increase in credit flow to the private sector from the banking and financial sector in the current fiscal year. According to this, loans have increased by 7.1 percent in nine months.
The increase in imports, construction and share credit has led to a slight increase in overall credit flow. “However, the amount of interest rate has come down, the amount of credit has not increased,” said a banker.
According to the central bank, the credit to the industrial production sector has increased by 9.6 percent in the current fiscal year. The credit to the industrial production sector increased by 9.6 per cent to Rs 898.15 billion in April 2018 from Rs 819.1 billion in June 2018.
In March 2018, the credit to the manufacturing sector stood at Rs 819.1 billion. The loan disbursed to the construction sector has increased by 11.4 percent as compared to June 2018. Such credit flow has increased from Rs 207.99 billion in June to Rs 231.67 billion in April 2081.
Now the import and construction sectors are becoming stronger as a support for the expansion of credit to the economy. Bankers say that the increase in credit flow towards the stock market has also made it easier to increase credit.
