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The media has been abuzz with the talk of Nepal’s favourable trade balance. The year-end trade statistics show a positive growth in export and a pause in import. While the export volume (in rupees) grew by 11.2 percent between the fiscal 2073/74 and 2074/75, it grew by amazing 19.4 percent between 2074/75 and 2075/76. Between 2074/75 and 2075/76, there has been a halt in ever increasing import volume too as it grew by 13.9 percent compared to 26.3 percent in the previous fiscal. Nepal has been suffering from continued import growth and declining export volume and options, draining foreign exchange reserves and widening trade deficit. The favourable figures, both in export and import, led to the slowing down of trade deficit. The reported figures portray a picture of better days in the offing.

Unfortunately, as one digs deep into export figures, the euphoria evaporates. Surge in export is neither due to increasing export volume of traditional export items like hand-knotted woollen carpet, pashmina products, handicraft, and readymade garments; nor due to any new home-grown product. The list of major export commodities shows palm oil as the number one export item for the fiscal 2075/76. Its contribution to total export, standing at 10.64 percent, was the highest among the major exported commodities. Interestingly, the export figure of palm oil was absolute ‘zero’ just a year back in 2074/75.  In the first five months of the current fiscal, the trend continued. Export increased by 27 percent compared to first five months of the previous fiscal. Again, the number one contribution came from palm oil, whose export increased by 756.1 percent, reaching rupees Rs 11.52 billion in the first five months.

These figures are pleasant surprise for a nation which does not produce palm oil. Now, as one digs further into the facts, we see adoption of the ‘true and tested’ trading practice of benefiting from the tariff gap in India. This time, it is a duty of 40 percent or more imposed (by India) on import of crude and refined palm oil from major palm oil producer Malaysia. And, Nepal has 10 percent duty on import of crude palm oil. Nepal and India both being part of SAFTA (South Asian Free Trade Area), Nepali traders are more than happy to take advantage of the SAFTA’s provision of minimum tariff on goods exported from underdeveloped countries like Nepal. If the exporter can add value in final product, say by 30 percent in Nepal, then there is zero tariff levied in India. This further motivates traders to import crude palm oil, process and package it in Nepal, and export to India. But one cannot benefit from such tariff gaps for long. 

Already, India’s recent move to halt the import of refined palm oil (originating in Malaysia) has hit the Nepali palm oil exporters hard. Still, there is hope if Nepali government is serious about taking this issue up with India and India agrees to halt in import of products originating only in Malaysia. Nepal has been importing crude palm oil from both Malaysia and Indonesia. If so, Nepal might need to shift all its crude palm oil import to Indonesia and ensure there is at least 30 percent value addition while producing refined palm oil in order for Nepal to continue to benefit from its export of palm oil.

Note: All facts and figures are derived from online resources of Trade and Export Promotion Centre, Ministry of Industry, Commerce and Supplies

In the past six weeks, NEPSE has shown some positive signs. The index was unwilling to sink below 1,110 and instead moved north from 25 November 2019. Now, it is expe­riencing a tough call at 1,170, while still managing to stay above 1,150. The positive rally is mainly sup­ported by the non-banking scrips. As discussed in my last column, the Nepali bourse is dominated mainly by the banking and financial institu­tions-related sub-indices. Only if the banking sub-index wakes up from its protracted bearish nightmare will the current positive rally test further highs.

Since mid-September, the banking sub-index is moving in a ranged zone with a narrow gap of just 50 points. Its movement is restricted within 1,010 points, working as the sup­port, and 1,060 points, working as the resistance. Its inability to break the resistance at 1,060 paints a bleak picture for the bourse’s northbound movement. Still, its unwillingness to go below 1,010 points gives an opti­mistic view of the sub-index already testing its troughs. As long as this non-trending situation continues in the banking sub-index, the overall market will not get a clear direction.

On 23 July 2015, the new Gover­nor of Nepal Rastra Bank Chiranjibi Nepal unveiled his first monetary policy—announcing 300 percent increment in the minimum paid-up capital requirement for commercial banks. The same policy asked the development banks to raise their paid-up capital by 2,300 percent. The new policy required the com­mercial banks to raise their paid-up capital from Rs 2 billion to Rs 8 bil­lion. National-level development banks needed to raise it from Rs 640 million to Rs 2.5 billion. They were given two years to achieve this target. The underlying objective was to encourage them to go for mergers and acquisitions and reduce the number of commercial and devel­opment banks.

But as the majority of commercial banks were not in favor of mergers and acquisitions, only a few went for it. The majority decided to utilize the two years’ time to raise paid-up capital by issuing bonus and right shares. Promising net earnings of commercial banks coupled with the certainty of multiplication in the shareholdings encouraged people to invest in such scrip. The demand exceeded the supply and the bank­ing sub-index saw continued high­er-highs in its trading charts.

The dominance of the banking sub-index swayed the bourse in favorable territory and NEPSE saw a bullish run till August 2016. While the expectations of future return fuelled the Bull Run, the actual real­ization of the return in bonus and right issuance resulted in a glut in the market. Existing demand was unable to absorb the ever-increasing supply. In addition, the increasing supply started diluting the earn­ings. The blue-chip scrip of Standard Chartered Bank alone saw a decline in earnings per share from Rs 67.47 in Fiscal Year 2070/71 to Rs 31.15 in the Fiscal Year 2075/76. This is attributed to a massive increase in capital. Of course, all of these com­panies are working hard to maintain their previous earning levels but this requires time.

The second quarter of Fiscal Year 2076/77 is almost ending. Now, everyone is eagerly waiting to review the quarterly reports for signs of earning rebound. If the reports show better earnings compared to pre­vious fiscal, the investors will get more bullish. Each quarter report (of different banks) showing positive growth in net income (compared to the same quarter of previous year) will fuel interest to accumulate their stock. As soon as we see this in finan­cial reports, we can also witness breakouts at multiple resistance levels in the technical charts. In next one month, the mystery will start to unravel and people will have better information to take their positions.

Laxmi’s 19th AGM

Laxmi Bank held its 19th Annual General Meeting (AGM) in Kath­mandu this week. The AGM approved the pro­posal of distribution of 10 percent Bonus Shares and 5 percent Cash Dividend on the bank’s current paid up capital. With this, the paid up capital shall grow up to Rs 9.81 billion (after the distri­bution of bonus shares). The AGM discussed and approved the Directors’ Report and the Financial Statements for 2018/019 (2075/76), and rati­fied the appointment of direc­tors representing Promoter shareholders in the bank’s Board of Directors.

The bank closed the finan­cial year 2018/19 with a bal­ance sheet size of Rs 106 billion and net profit of Rs 1.59 billion. All key financial indicators are well within prudential and regulatory norms. The bank’s liquidity ratios remained well above the statutory requirement throughout FY 2018/19, reflecting the strength of its asset-liability management.

 NMB pre-approved education loan

NMB Bank has rejuvenated its Edu­cation Loan offering by introducing a series of attractive features among which prominent offerings include pre-approval facility, 100 percent financing with up to 15 years tenure, and up to 4 years mor­atorium period. The bank has made key additions with the objective of ensuring customers/students do not face financial hurdles in their aspiration to study abroad.

The bank will now finance up to 100 percent education cost, living and travel expenses. Further, to provide flexibility to students on sponsorship for abroad study, the bank has widened the scope of spon­sors covering both paternal and maternal grandparents, immediate in-laws, and uncles/aunts. Accordingly, the loan ten­ure has been increased to up to 15 years, whereas the criterion for moratorium period has been set at a low of four years or the entire course duration.

Hult Prize winners announced

The Hult Prize organizing committee in Nepal this week announced the winning team, which has advanced to the 11th annual Regional Summit in Vietnam. The “Pop-Pack” from King’s College won with their idea of revolutionizing the packaging industry of daily consumable items such as tooth­paste and shampoo. The winning team of BBA stu­dents includes Sachin Dangi, Rupesh Puri, Samaya Khadka, and Sushat Gaire.

The Regional Summit is happening all around the globe including in countries like Malaysia, Japan, London, the US, Mexico, Jordon, Nigeria, Philip­pines, and Pakistan.

The Hult Prize is a crowdsourcing platform for social good that was named one of the top five ideas changing the world by TIME Magazine. The innova­tive crowdsourcing platform identifies and launches disruptive and catalytic social ventures to solve the planet’s most pressing problems. This year, the Hult Prize’s focus is on ‘Empowering the Earth: Bold Business for a Better Planet’.

Laxmi’s ‘Viber-Stickers’

Laxmi Bank released its 16-set sticker pack on Viber with the objective of making mon­ey-talks more enjoyable in the Viber chat world. This was the first ‘Nepali animated sticker pack’ to be released on Viber.

Stickers are a fun, colorful way to express in Viber and “Greetings from Laxmi” defi­nitely does that, a press release issued by the bank reads. Laxmi Bank offers its valued customers products, services and tips that make a differ­ence in the everyday lives of individuals, families, small businesses or large corporates, the statement adds.