The disbursement of loans by banks and financial institutions (BFIs) to the country’s industrial sector has dipped in the first half of FY 2022/23. As industries across the country grappled with the prolonged liquidity crunch and interest rate volatility in the first six months, they took fewer loans from the BFIs. According to the Half Yearly Economic Activities Report (Integrated) 2022/23 Report made public by the central bank The BFIs’ loan disbursement to industries decreased by 6.9 percent to Rs 1343.37bn in the first half of the current fiscal year compared to the growth of 19.4 percent during the corresponding period of FY 2021/22. In the first six months of the last fiscal year, BFIs disbursed a total of Rs 1443.19bn to the industrial sector. According to the report, of the total loans, Bagmati Province has the highest share of 67.21 percent. The BFIs disbursed Rs 902.87bn in loans to the industries in Bagmati Province while Karnali Province has the lowest share of 0.39 percent (Rs 5.28bn).

Of the total industrial loans disbursed during this period, 39.6 percent went to the non-food manufacturing industry, 20.1 percent to the agriculture and beverage industry, 20 percent to the electricity and gas industry, 13 percent to the construction industry, six percent to the metal industry and 1.3 percent to the mining industry.

The disbursement of loans declined because industries’ overall capacity utilization took a beating in the first half of this fiscal. The interest rate volatility and surge in the prices of raw materials have hit the country’s industrial output in the first half of the current fiscal year. Industries in Nepal saw their average capacity utilization falling in the first six months of FY 2022/23 compared to the same period of FY 2021/22. According to the Half Yearly Economic Activities Report (Integrated) 2022/23 Report made public by the central bank, the average capacity utilization of industry in the first half of this fiscal stood at 43.07 percent compared to 48.3 percent in FY 2021/22. The central bank report shows the electricity, chocolate, and processed tea industries' capacity utilization was the highest during this period. The capacity utilization of the electricity industry stood at 93.19 percent, while that of the chocolate industry and processed tea industry stood at 85.59 percent and 85.39 percent respectively. The increase in the cost of doing business due to rising interest rates along with the decline in market demand has badly affected the operational efficiency of industries across all seven provinces. The report shows industrial production in three provinces housing the country’s major industrial corridors—Koshi, Madhes, and Lumbini -remained weak this year compared to last year. Except for Karnali Province, the capacity utilization of all six provinces remained below 50 percent while Bagmati and Sudurpaschim provinces' industries' efficiency increased marginally in this fiscal. The capacity utilization of industries producing vegetable ghee, mustard oil, soybean oil, rice, wheat flour, animal feed, biscuits, noodles, alcohol, soft drinks, synthetic fabrics, processed leather, paints, tablets, capsules, ointments, liquids, soaps, plastic goods has improved in the first half of FY 2022/23. Similarly, industries manufacturing cement, concrete, iron rods and sheets, aluminum products, electric wires and cables, tires and tubes, and leather shoes were better than the last fiscal. However, industries producing processed milk, sugar, chocolate, processed tea, beer, cigarettes, yarn, pashmina, garments, jute goods, raw leather, paper, rosin, dry syrup, bricks, steel products, GI wire, and GI pipe decreased during this period. Box 1 Industrial Loan Disbursement (First Six Months)

FY Loan Disbursed 2022/23 Rs 1343.37  billion 2021/22 Rs 1443.19 billion

  Box 2 Province-wise Loan Disbursement

Province Loan Disbursed Koshi Rs 127.84 billion Madhesh Rs 114.02 billion Bagmati Rs 902.87 billion Gandaki Rs 39.93 billion Lumbini Rs 124.25 billion Karnali Rs 5.28 billion Sudurpaschim Rs 29.14 billion

Box 3 Average Capacity Utilization of Industries (First Six Months)   

FY Capacity Utilization 2022/23 43.07% 2021/22 48.3%