Kathmandu. KATHMANDU: The gap between the targets set by the Nepal Rastra Bank (NRB) through the monetary policy for the current fiscal year and the achievements made so far has clearly illustrated the challenging situation the country’s economy is going through. <\/p>\n
Although the Nepal Rastra Bank (NRB) had set a target of expanding credit to the private sector by 12 percent, it grew only 6.2 percent in the first 11 months (May). It had expanded by 8 percent in the same period of the previous year. This shows that credit flow has been sluggish this year as compared to last year. <\/p>\n
As of mid-June 2018, the total credit flow has reached Rs 5.838 trillion. That’s only half of the target. <\/p>\n
Sectoral analysis of credit flow has raised serious questions about the productivity of the economy. Credit to agriculture, which is considered the basic sector of the country, has decreased by 2.4 percent. <\/p>\n
The growth in the industrial sector was 6.8 percent, while the service industry increased by 4 percent and the finance, insurance and real estate sectors by 0.6 percent. However, the credit to the consumer sector, which is considered unproductive and import-oriented, has increased by 13 percent. <\/p>\n
Similarly, 15.1 per cent credit disbursed to construction sector and 12.5 per cent to transport, communication and public services. This shows that the bank’s money is being concentrated more on services and consumption than on manufacturing and agriculture. <\/p>\n
The central bank has blamed various internal and external factors for the failure to achieve the expected target. The NRB’s review states that the morale of the private sector has been lowered due to the delay in monsoon and the impact on agricultural production due to heavy rainfall in September 2008, as well as the uneasy situation arising after the agitation of September 7 and 24, 2002. <\/p>\n
In addition to this, the decline in foreign trade, confusion over land plotting and uncertainty on power purchase agreement (PPA) have also stopped the flow of loans. The non-performing loan (NPL) ratio of banks has increased due to poor quality of loans issued in the past. This has reduced the ability of banks to invest. <\/p>\n
Liquidity in the banking system has been historically high. Deposits of banks and financial institutions (BFIs) increased by 10.3 percent (Rs 748.62 billion) to Rs 8.12 trillion as of mid-June 2018. Such deposits had increased by only 8 percent (Rs 517.60 billion) in the previous year. <\/p>\n
On a year-on-year basis, the growth rate of deposits is 15.0 percent. Banks have accumulated more liquidity as deposits increase but loans do not go out. To manage this, the central bank has to withdraw a total of Rs 391.13 trillion (transaction-based) liquidity from the market till mid-May. Out of this, Rs 33.29 trillion has been raised through deposit bidding, Rs 35.584 trillion through fixed deposit facility and Rs 200 billion through bonds. Although Rs 12.5 billion was disbursed through the overnight facility, liquidity of Rs 391.7 trillion has been mopped up in net amount. <\/p>\n
Banks’ interest rates have fallen to the lowest point in history due to lack of demand and accumulation of money. As per the data as of mid-June, the average base rate of commercial banks has been reduced to 4.88 percent. The weighted average interest rate of deposits is 3.29 percent and the average weighted interest rate of loans is 6.64 percent. Governor Bishwo Poudel’s 11 per cent credit expansion target for the next fiscal year is likely to be even more difficult to meet the private sector’s enthusiasm even at such low interest rates. <\/p>\n
The pressure on monetary management is sure to increase if the money received from remittances is added to the system but not invested. On the other hand, the private sector is somewhat optimistic as the monetary policy for the coming fiscal year has already been announced. Prime Minister Balendra Shah (Balen) also met with representatives of the private sector and urged them to invest in the country with high morale. <\/p>\n
Although the economy is expected to pick up some momentum, experts point out that the coming fiscal year will also be challenging in terms of credit expansion.<\/p>\n","protected":false},"excerpt":{"rendered":"
Kathmandu. KATHMANDU: The gap between the targets set by the Nepal Rastra Bank (NRB) through the monetary policy for the current fiscal year and the achievements made so far has clearly illustrated the challenging situation the country’s economy is going through. Although the Nepal Rastra Bank (NRB) had set a target of expanding credit to […]<\/p>\n","protected":false},"author":16,"featured_media":219859,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45117,45031,45159],"tags":[],"class_list":["post-307014","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bank-finance-en","category-banner-news-en","category-news-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/307014","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/comments?post=307014"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/307014\/revisions"}],"predecessor-version":[{"id":307015,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/307014\/revisions\/307015"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/219859"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=307014"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=307014"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=307014"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}