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With Nepal Rastra Bank adopting tighter monetary policy along with a slowdown in loan demand, the commercial banks’ lending grew by a marginal 3.42 percent in the last fiscal year. 

The commercial banks that experienced a liquidity crunch in the first half of the FY 2022/23 saw problems of non-disbursement of loans in the second half of the last fiscal. Bankers said demands for loans have remained low throughout the last fiscal. 

While the NRB had targeted private sector credit growth to 12.6 percent in 2022/23, the actual credit growth remained much lesser than the target. In fact, the credit expansion to the private sector in 2022/23 was far less than what the banks lent in 2021/22. The banks’ lending grew by 3.42 percent in 2022/23 compared to 12.2 percent in 2021/22.

According to bankers, the private sector has not sought bank loans with the deepening economic downturn. On the other hand, retail loans such as housing loans and auto loans did not grow due to higher interest rates. While the BFIs gradually lowered the loan interest rates, the demand for loans did not surge as expected.

According to the data of the Nepal Bankers Association (NBA), commercial banks disbursed loans amounting to Rs 144bn in 2022/23 whereas such loan disbursement in 2021/22 stood at Rs 454bn. The total lending of banks by the end of the last fiscal year stood at Rs 4,318bn. 

“The demands for loans have remained subdued due to the state of the economy and businesses,” said Sudesh Khaling, CEO of Everest Bank, “In the initial months of the last fiscal, credit flow could not increase due to a lack of liquidity in the banking system. Later, when the liquidity situation improved, there was no demand for loans.”

Bankers say the other reason behind the sluggish lending is banks have become more cautious in loan disbursement due to a sharp rise in non-performing loans (NPLs).

According to the private sector, the high-interest rates also contributed to lower demand for loans. The private sector has been demanding that interest rates need to be lowered arguing that the average interest rate of loans remained higher that previous years. 

Deposits of commercial banks increased by 12 percent in 2022/23. The banks’ deposits stood at Rs 5,086bn in mid-July 2023 from Rs 4,541bn in mid-July 2022. The banks’ deposits increased by Rs 545bn in the last fiscal.   

After going through a liquidity crunch in the first half, the banking system was flushed with excess liquidity by the end of the last fiscal. With demands for loans drying up, investable capital piled up in the banking system in the last few months of 2022/23. 

With lesser demand for loans, the CD ratio of commercial banks came down to 82.10 percent in mid-July 2023, which was 88.07 percent in mid-July 2022. As per central bank regulatory norms, banks can disburse 90 percent of their deposits in loans. Banks have to maintain the credit-to-deposit ratio (CD ratio) at 90 percent. 

The price of gold has increased by Rs 800 per tola in the domestic market on Thursday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 113, 500 per tola today. It was traded at Rs 112, 700 per tola on Wednesday.

Meanwhile, tejabi gold is being traded at Rs 112, 950 per tola. It was traded at Rs 112, 150 per tola.

Similarly, the price of silver has increased by Rs 35 and is being traded at Rs 1, 490 per tola today.  

The Nepal Stock Exchange (NEPSE) plunged by 8. 11 points to close at 2,156.20 points on Wednesday.

Similarly, the sensitive index dropped by 2. 05 points to close at 409. 11 points.

A total of 7,399,474-unit shares of 260 companies were traded for Rs 2. 43 billion.

Meanwhile, Kisan Lagubitta Bittiya Sanstha Limited was the top gainer today with their price surging by 6. 96 percent.

Likewise, Jalpa Samudayik Laghubitta Bittiya Sanstha Limited was the top loser with its price dropping by 6. 49 percent.

At the end of the day, the total market capitalization stood at Rs 3. 16 trillion.

As the majority of insurance companies’ paid-up capital is still below the regulatory requirement even after mid-July, 2023, Nepal Insurance Authority (NIA) is mulling to allow companies to issue rights shares to increase their capital base.  

The right shares issuance facility will be given to those companies who've completed the merger and those whose paid-up capital will reach the regulatory requirement after issuing 30 percent right shares.

According to NIA sources, the authority’s board meeting scheduled for Thursday will take the final decision. “Many companies have not yet raised the paid-up capital required by the regulator. We will permit the issuance of the right shares for companies that have chosen to merge. Additionally, we will allow companies that have not opted for a merger but would reach the regulatory capital limit by issuing 30 percent right shares to proceed with right shares issuance,” said a senior official of the authority.

The NIA forced insurance companies to go either for mergers or acquisitions by raising the minimum paid-up capital requirements for both life and non-life insurers. The regulator has increased the paid-up capital of non-life insurance companies to Rs 2bn while it is Rs 5bn for life insurance companies. A year ago, NIA directed the non-life insurance companies and life insurance companies to meet the regulatory requirement by mid-April 2023. With the majority of companies failing to meet the regulatory limit, the NIA extended the deadline by three months to mid-July, 2023. 

After the NIA issued the directive on paid-up capital increment, only seven insurance companies (three life insurance companies and four non-life insurance companies) met the regulatory limit. Among the life insurance companies, the paid-up capital of Nepal Life Insurance Company, Himalayan Life Insurance Company, and National Life Insurance Company is above Rs 5bn. Four non-life insurance companies—Shikhar Insurance, Siddhartha Premier Insurance, IGI Prudential Insurance, and Sagarmatha Lumbini Insurance have also met the regulatory obligation. 

With NIA pushing for capital increment, the majority of insurers have opted for mergers. However, even after the merger, many of them are yet to meet the regulatory requirement. 

In the case of insurance companies having foreign investments such as MetLife, and The Oriental Insurance, their foreign promoters are said to be injecting additional capital to meet the regulatory requirement.  NIA sources say Prabhu Insurance is trying to bring foreign partners while Nepal Insurance is planning to raise capital by selling its assets.