Banks witnessed fluctuations in their transactions this year due to the liquidity crunch and a balance of payments deficit. They stopped new lending for real estate, shares and hire purchase as a result. They had to go for inter-bank lending by offering a high rate of interest and they also increased the interest on deposits as they failed to attract adequate deposits.
Following the limitation imposed on issuing credit to the real estate sector, banks with high exposure to the sector had to cease lending. Banks with low exposure to real estate are also lending cautiously as deposits have stagnated. Those who had already taken loans were also compelled to pay increased interest rates.
The next year will be tough for the banking sector. Despite a growth in deposits, they may not be able to issue loans without restrictions. The central bank is sure to keep a close watch on lending as it has been the main reason behind the liquidity crunch. Deposits are estimated to cross Rs. 600 billion by the end of the current fiscal year. This means that only Rs. 20 billion has been collected in the second six months of the current fiscal year.
With the cash crunch and other symptoms of an economic crisis prevailing, the central bank is unlikely to loosen its strict measures on lending. Finance secretary Rameshwor Khanal hinted at a programme held on the budget on Saturday that the measures taken to stabilise the economy would continue. Khanal is also a board member of NRB.
President of Nepal Bankers’ Association Sashin Joshi said the real estate lending witnessed a fall as a result of the liquidity crisis, while banks with high credit and deposit ratio are also required to cut their lending to the realty sector.
[ Banks with low exposure to real estate are also lending cautiously as deposits have stagnated.]
“I believe the banks have virtually stopped new lending to the realty sector although the liquidity situation has improved to some extent in recent days,” Joshi said. The strict NRB policy to discourage real estate lending is also responsible for the decline in the real state loans. Banks and financial institutions are required to reduce their real estate lending to 25 percent of the total lending and to 40 percent in both the real estate and housing credits by the end of the current fiscal as per an NRB directive issued last December.
The NRB took the measure to curb unrestricted lending, especially in the realty sector, fearing the pernicious impact of such lending for the health of banks and financial institutions.
A total of 16 banks out of the 26 saw their lending to the real estate sector go down, while the rest saw a slight increase. Among the banks witnessing decline are Nepal Bank Limited, Nepal Investment Bank Limited, Standard Charted Bank, NIC Bank, Machhapuchhre Bank, Kumari Bank, Laxmi Bank, Siddhartha and Global Bank. Citizens, Prime, Sunrise, Bank of Asia, DCBL, NMB and KIST have also cut down on loans in the sector.