Deputy Prime Minister and Finance Minister Bishnu Paudel raised concerns on Monday, January 20, about the slower-than-expected credit expansion in Nepal's financial sector.
Speaking at a program in Kathmandu to mark the 58th anniversary of the Agricultural Development Bank, Nepal, Paudel acknowledged encouraging deposit growth but expressed worry over the sluggish pace of loan disbursement. He urged banks to devise strategies to boost credit flow, which he emphasized is crucial for enhancing production, productivity, and job creation.
The Nepal Rastra Bank (NRB), in its monetary policy for the current fiscal year, set a target to increase credit to the private sector from banks and financial institutions (BFIs) by 12.5%. However, credit expansion to the private sector grew by only 3.5% year-on-year during the first five months of the fiscal year, a modest improvement from the 2.3% growth recorded in the same period last year. On a year-on-year basis, credit to the private sector rose 7% in mid-December 2024.
In the last fiscal year, 2023/24, credit expansion to the private sector had increased by 5.1% year-on-year in the first 11 months, falling short of the annual target of 11.5% .
NRB Governor Maha Prasad Adhikari, also speaking at the event, noted that Nepal's economic and financial indicators are showing signs of recovery. While acknowledging challenges in managing inflation amid external pressures, Adhikari said the overall situation remains within expected limits.
The government, in its budget for 2024/25, projected inflation to remain at 5.5%, while the central bank's monetary policy anticipated a 5% inflation rate. However, year-on-year consumer price inflation reached 6.05% in mid-December 2024 , the highest level since mid-October 2023.
Trade data showed improvement , with imports rising 7.1% to Rs 822.37 billion, and exports surging 31.8% to Rs 98.79 billion as of mid-January 2025. In contrast, the same period last fiscal year saw a 3.1% decline in imports and a 7.2% drop in exports.
Though banks have been enjoying sufficient liquidity and the interest rates have dropped, Adhikari pointed out that banks are struggling with loan recovery.
Banks and financial institutions are required to auction assets pledged as collateral if loan recovery becomes difficult. However, poor market conditions have made it challenging to sell these assets, forcing banks to provision 100% of their value until they are sold.
Data from NRB shows the total value of non-banking assets (NBAs) held by BFIs rose by Rs 16.34 billion to Rs 38.26 billion by mid-November 2024—a 74.59% increase from Rs 21.91 billion in the same period last year.
Additionally, the net profit of commercial banks fell 4.62% year-on-year in the first six months of the current fiscal year. The combined net profit of 20 commercial banks totaled Rs 27.43 billion, down from Rs 28.76 billion in the same period last fiscal year, according to their unaudited financial reports for the second quarter.
(With inputs from RSS)
