Kathmandu. The long-standing slowdown in the economy, weak demand, contraction of investment and policy uncertainty have affected the banking sector. <\/p>\n
As the demand for credit is weakening, banks and financial institutions are piling up investable money, while on the other hand, the limit of the capital fund has put pressure on the ability to convert the available resources into loans. However, the current problem is not due to the weakening of the basic structure of the banking system, but it seems to be the result of the continuous economic shocks seen in recent years. <\/p>\n
It is expected that the banking sector will also be revitalized as economic activities begin to expand as there is no major structural damage in the major sectors of the economy. The main challenge now is not the lack of money in the banks, but the weak environment to mobilize the available resources in the productive sector. Due to the decrease in the demand for credit, the investment capacity of the private sector is weak, and the morale of the businessmen is low, the resources in the banking system have not been mobilized. <\/p>\n
In recent years, the economy has been facing one pressure after another, including the pandemic, high interest rates, fluctuations in real estate and stock markets, weak consumption, sluggishness in investment, and increasing migration of young people abroad. This has affected production, trade, employment and investment. The contraction of economic activity has had a direct impact on the expansion of bank credit. As the demand for credit weakens, the resources of the banks will increase but the opportunity to mobilize them will be limited. <\/p>\n
Now another problem seen in the banking sector is related to the returns of the investors. Although the banks have made significant profits, there is a growing complaint that the returns received by the investors are not attractive. There is a problem in the free mobilization of capital due to the lack of easy exit for the investors in the ownership structure of the bank and the entry process for new investors. The regulatory system in the trading of promoter shares has created a situation where some investors are not able to exit easily even if they want to exit and the process is not easy even if new investors try to come in. <\/p>\n
This has also affected the restructuring of capital in the banking sector. Even though there are new investors who are willing to invest in the bank, due to the existing structure, they do not have the opportunity to enter easily and the old investors are not able to exit, which has reduced the flexibility in the ownership and capital management of the bank. There is a need to improve the existing system in order to attract new investors who can take the necessary capital and take risks in the banking sector. <\/p>\n
Regulatory risk has also become another issue affecting the decision-making capacity of banks. The provision of making provisions beyond a certain limit creates tax liability and the risk of losing the position of directors and CEOs even in the case of action taken after the regulator’s awareness, has made the bank management more cautious. Although regulation is necessary, the perception of excessive risk at the decision-making level can have an impact on credit expansion and business decisions. <\/p>\n
Disputes related to mortgage auctions have also further discouraged the banking sector. If the legal and social disputes arise when the process of mortgage sale and auction is seen by the banks in the process of managing bad loans, then the bank management may be more hesitant to take the risk. This increases the risk of slowing down the pace of bad loan management and making banks more defensive when issuing loans in the future. <\/p>\n
At the heart of the slowdown in the economy seems to be the lack of demand. The private sector is reluctant to expand new investment as the demand for goods and services does not increase in the market. In the absence of new investment, job creation is weak, income growth slows down and it again affects consumption and demand. This cycle runs the risk of slowing the economy for a long time. <\/p>\n
Demographic changes are also linked to this. With a large number of young people going abroad, not only has the labor force within the country decreased, but the base of production, consumption and investment has also weakened. If we can create employment and enterprise opportunities for the youth going abroad in the country and create an environment to bring back the manpower that has gone abroad, it can help in expanding the domestic demand. <\/p>\n
There is also a need to accelerate the use of natural resources, expansion of exports and commercial use of resources available within the country. There is a possibility of increasing economic activities if the timber that is not used in the forest area can be linked to production and industry. With the increase in production, employment and income will increase and it will also have an impact on consumption and demand for credit. <\/p>\n
The current situation in the banking system is also a paradoxical picture of the economy. Even though banks and financial institutions have about Rs 14-15 trillion in investible resources and low interest rates, the demand for loans is weak and the pressure on the capital fund is not fully mobilized. This shows that the problem of credit mobilization is bigger than the lack of liquidity in the banking sector at present. <\/p>\n
Due to the pressure on the capital fund, the banks have also had to look for alternative capital mobilization. The compulsion to expand the business while maintaining the limit of the primary capital fund has made the capital management of the banks more challenging. Due to this, the pressure to use various instruments to raise additional capital has increased. However, when its cost is high, it has become another challenge to maintain a balance between the return of the bank and the return to the investors. <\/p>\n
The current banking problem is more related to the lack of resources in the economy than the lack of resources in the banks. There is money in the banks, but the demand for loans is weak. There are investors but the change of ownership is not easy. There is a need for credit expansion but there is pressure on the capital fund. Banks are able to invest, but regulatory and legal risks have made the decision-making process more cautious. <\/p>\n
Therefore, it is not possible to make the economy dynamic by reforming the banking sector alone. The work of boosting the morale of the private sector, maintaining policy stability, removing legal obstacles related to investment, easing the entry of new capital into the banks and the exit of old investment, and creating an environment for investment in the productive sector needs to be carried out in parallel.<\/p>\n","protected":false},"excerpt":{"rendered":"
Kathmandu. The long-standing slowdown in the economy, weak demand, contraction of investment and policy uncertainty have affected the banking sector. As the demand for credit is weakening, banks and financial institutions are piling up investable money, while on the other hand, the limit of the capital fund has put pressure on the ability to convert […]<\/p>\n","protected":false},"author":16,"featured_media":226802,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45117,45031,45159],"tags":[],"class_list":["post-317195","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\/317195","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=317195"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/317195\/revisions"}],"predecessor-version":[{"id":317196,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/317195\/revisions\/317196"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/226802"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=317195"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=317195"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=317195"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}