Banks unlikely to meet credit growth target

KATHMANDU, Jan 26: Commercial banks of the country appear unlikely to meet the credit expansion target set by the central bank for this fiscal year, as class ´A´ financial institutions struggle to find good borrowers and viable projects where they can channel their cash.



Nepal Rastra Bank (NRB), while launching the monetary policy for this fiscal year, had estimated that commercial banks´ credit to private sector would go up by 14 percent in 2011/12 as against 13.3 percent recorded in the last fiscal year. [break]



But in the first five months of the fiscal year to mid-Dec, credit expansion rate of these banks stood at 3.6 percent, as against 5.4 percent in the same period last fiscal year. This was despite rise in deposit collection by Rs 67.56 billion (almost 10 percent) during the period.



Figures of the central bank show that credit growth in the production sector, which absorbs 50 percent of the total bank loans, went up by 8.4 percent to Rs 9.71 billion over the first five months as against growth of 11.3 percent (Rs 10.71 billion) recorded in the last fiscal year.



Similarly, credit to transportation equipment production and fitting sector stood at Rs 700 million as against Rs 1.59 billion in the first five months of last fiscal year. In total, banks were able to lend Rs 19.18 billion in the first five months of the current fiscal year over Rs 25.21 billion in the same period last fiscal year.



Bankers say the credit growth rate has declined over the months due to slowdown in the real estate market, which is said to have absorbed more than Rs 80 billion of commercial banks. Since a good portion of this amount belongs to “good borrowers”, banks are struggling to find other borrowers who are willing to invest in “viable projects”.



“We haven´t been able to find good borrowers and viable project because the investment climate in the country is gloomy,” Rajan Singh Bhandari, CEO of Citizens Bank, said.



As commercial banks failed to attract borrowers despite sitting on piles of cash, the central bank recently resorted to the obsolete tool of directed lending for the first time in 20 years and instructed all banks and financial institutions to raise their exposure to agriculture and energy sectors to 10 percent of the total credit portfolio.



However, the NRB has clearly told banks to keep a separate account of directed lending and not combine it with the existing credit portfolio. This provision is expected to make it difficult for commercial banks to meet the credit growth target of 14 percent this fiscal year.

Related story

Lending slows as banks focus on recovery of loans at fiscal yea...