Private sector credit growth slows to 6.2% amid loan recovery pressure

KATHMANDU, July 14: Lending by banks and financial institutions (BFIs) to the private sector has slowed sharply, with credit flow rising only 6.2 percent in the first 11 months of the current fiscal year. According to the Current Macroeconomic and Financial Situation Report released by Nepal Rastra Bank (NRB), BFIs extended Rs 340.57 billion in loans during the review period, bringing total private sector lending to Rs 5.838 trillion. In the same period last fiscal year, credit had grown by 8 percent, amounting to Rs 407.62 billion. The pace of lending is far below the central bank’s annual target of 12 percent growth.

Santosh Koirala, President of the Nepal Bankers’ Association, said loan recovery has become a major challenge this year due to the economic slowdown and strict regulatory measures. He noted that commercial banks alone are left to recover Rs 388.37 billion in interest payments as of the 11-month period.

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During the review period, commercial banks expanded credit by 6.3 percent, while development banks’ lending rose 5.6 percent and finance companies’ lending increased 3.9 percent. Household sector lending, however, surged by 37.4 percent.

Sector-wise, loans to the construction sector grew the fastest, rising by 15.1 percent. Lending to the consumer goods sector increased 13 percent, followed by transport, communication and public services at 12.5 percent, industrial production at 6.8 percent, and services at 4 percent. Loans to the finance, insurance and fixed asset sector increased only 0.6 percent.

Among loan categories, import-related trust receipt (TR) loans surged 36.7 percent, while margin loans rose 15.8 percent. Hire purchase loans increased 10.3 percent, real estate and housing loans grew 6.3 percent, working capital loans rose 5.8 percent, and term loans increased 4.3 percent.

Deposits in BFIs also showed significant growth, increasing by Rs 748.62 billion to Rs 8.012 trillion during the review period. In the same period last fiscal year, deposits had grown Rs 517.60 billion, a rise of 8 percent. Notable changes were observed in deposit composition: the share of savings deposits rose to 46.6 percent from 36.2 percent a year ago, while term deposits fell to 37.3 percent from 50.2 percent. Institutional deposits also declined to 33.7 percent from 35.5 percent.