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BFIs try to entice customers by offering simple home loans, but they are unsuccessful

Credit crunch looms as commercial banks grapple with liquidity mismatch

KATHMANDU: Although Nepal’s commercial banks have begun providing simple loans to their customers because there are enough loanable funds available, they are unable to increase demand for loans from borrowers.

As of May 3, the banks and other financial institutions (BFIs) had a combined total of Rs 5.459 trillion in deposits, while lending Rs 4.842 trillion, according to Nepal Rastra Bank (NRB). The total deposits and loans made by commercial banks were Rs. 4.815 trillion and Rs. 4.295 trillion, respectively.

The credit-deposit ratio has decreased to 85 points and 24 percent against the NRB’s required policy rate of 90 percent as a result of the excessive increase in deposit collections compared to the slow rate of loan disbursement. According to data from the central bank, the BFIs have excess liquidity of more than Rs 200 billion to lend to potential borrowers.

The base interest rate of the commercial banks has also decreased to as low as 10 point 61 percent following an improvement in their liquidity position. They have also begun to offer loans with interest rates of 11.75% per year. The interest rates used to be higher than 15% a few months ago. .

Bankers claim that they have recently begun to concentrate on providing home loans by lowering their interest rates. Many of them have even announced various schemes to draw in customers in addition to lowering their interest rates.

The recent slowdown in economic activity, according to Sunil KC, president of the Nepal Bankers’ Association, has caused the banks to shift their emphasis to home loans. However, he added, “the move by the banks has failed to draw the borrowers primarily because of the ongoing recession.”.

In the first quarter (between mid-July and mid-October), Nepal’s economy grew at a meager 0 point 8 percent, according to a report from the National Statistics Office (NSO). Similar to this, the growth rate declined to -1% in the second quarter (mid-October to mid-January).

Additionally, according to the NSO’s forecast, the country’s economic growth rate will only be 2.16% in the current fiscal year, which is nearly four times less than the government’s target.

According to KC, the weak economic performance is a major factor in why even the reduced interest rates haven’t been able to increase the borrowers’ confidence.

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