At a national conference in Kathmandu on Thursday, hosted by the Association of Chartered Accountants of Nepal (ACAN), well-known bankers voiced worries about the negative impact of recent government policies on the banking sector and the broader economy. They claimed that these arbitrary actions have led to lower profits, decreased trust, and limited credit growth.
The key grievance raised was the government's decision to take away a staggering 31 billion Nepalese rupees from banks' core capital without providing any justification. Sunil KC, President of the Nepal Bankers Association, revealed that this move has directly contributed to many banks reporting negative profits in the current fiscal year.
KC highlighted the paradoxical situation where the average lending rate of 10.78% a month ago is lower than pre-COVID levels. Normally, such low rates should spur business activity, but the reality is the opposite - businesses continue to struggle despite the cheaper credit available.
"Until a year ago, it was said that the bank's interest rate was high and the business could not run. But now the big question is that even though the bank's interest rate is low, the business is not running," KC lamented.
He attributes this to the severely weakened morale and self-confidence in the private sector, which he claims is at a 20-year low. This lack of optimism has transcended into the banking sphere as well.
The numbers paint a grim picture - banks have invested a massive 6.1 trillion rupees, but have only extended 5.1 trillion rupees in loans. Credit expansion is crawling at just 4% so far this year and is projected to reach only 6% by the fiscal year-end, a mere fraction of the deposit growth rate.
Ratnaraj Bajracharya, CEO of Global IME Bank, acknowledged that Nepal's sluggish GDP growth should not be solely blamed on low credit expansion. He pointed out that bank lending has consistently grown at around 10% annually, far outpacing the 5% GDP growth.
"It is good that the expansion of bank loans is more than the GDP. But from the outside, credit has not reached everyone's reach. Bank loans to all businessmen are yet to be extended," Bajracharya stated.
The dismal performance has seen 12 banks already reporting negative profits this year. Bajracharya directly blamed the government's inexplicable move to remove 31 billion rupees from banks' core capital as a key factor crippling profitability.
Adding to the woes, the bankers claimed that despite banks sitting on over 5 trillion rupees worth of investable funds, the appetite for loans from businesses and individuals has dried up. KC revealed that banks are incurring daily losses simply to maintain the 3% interest rate on deposits mandated by the central bank.
The loss of confidence has been so profound that KC stated "Now any business deals are trying to be done in cash mode. Since there was no confidence, it affected the banking sector."
In a bid to prepare for any further economic turmoil, banks have set aside provisions of 10 billion rupees from June to mid-March. However, the bankers were united in their call for the government to urgently revisit its policies and work collaboratively with the private sector to restore confidence and stimulate growth.
"The morale of not only the private sector but also the banking sector has weakened due to the issues of the private sector and the actions taken by the government," KC warned gravely.
As Nepal grapples with this economic quagmire, all eyes are on policymakers to course-correct and facilitate an environment conducive for the banking sector to drive investment, lending and job creation in the nation.
