Market Watch

Bank lending growth rate down

Published by Octron on May 31, 2009

Although the number of commercial banks grew this year, the growth in lending to various sectors has not been in the same pace as it was a year ago.

According to the latest Nepal Rastra Bank (NRB) statistics for the first nine months of the current fiscal year, lending in some sectors has been negative and in many sectors the pace of growth has been lower than in the previous year.

Lending in the agriculture sector saw continued negative growth both last year and this year with minus 0.3 percent and 1.5 percent respectively. Lending to the agricultural sector came down to Rs. 13.6 billion this year from Rs. 13.8 billion last year.

Likewise, lending in the mining sector also has also seen negative growth by 3.2 and 9.9 percent respectively in the past two years. Lending in this sector went down to Rs.1.76 billion in the first nine months from Rs. 1.95 billion in the nine months of last year.

Sectors such as manufacturing, construction, transportation, communication and public services, wholesale and retail, finance, insurance and fixed assets and service industries witnessed the pace of growth declining this year.

But, consumable loans, lending on metal production (machinery and electronic) and transportation equipment production have seen higher pace of growth compared to last year.

“This trend suggests investment has stagnated,” says Shankar Sharma, former vice chairman of National Planning Commission. “The growth in consumable loans suggests remittances are being used in consumption instead of productive sectors.” Consu-mable loan for gold and silver, fixed account receipt, guarantee bond and credit cards increased by 33.3 percent this year against just 0.1 percent growth last year. Lending as consumable loans went up to Rs. 12.5 billion this year against Rs. 9.4 billion last year.

The lending for the gold and silver went up to Rs. 6.9 billion from Rs. 5.3 billion.

Although the manufacturing sector saw growth in lending by 14.1 percent, the rate is lower than the growth of 17.6 percent last year. Lending in the sector went up to Rs. 85.4 billion in the first nine months of the current fiscal year from Rs. 74.8 billion last year.

Growth in lending in the manufacturing sector could be lower due to chronic load shedding and labour problems.

The growth in lending in textile and clothing as well as paper is negative but the growth is positive in all other manufacturing sectors. The growth of lending to tobacco and handicrafts is higher this year compared to last year. Likewise, the growth in beer, alcohol and soda has come down compared to last year, according to the NRB report.

Although the lending in the real estate sector grew significantly this year, it was lower compared to last year, according to NRB report. The construction sector saw a growth of 27.2 percent to Rs. 41 billion this year from 43.3 percent growth of last year compared to 2006/07. Commercial banks’ investment in residential and non-residential housings saw slow pace of growth of 23.2 percent and 49.8 percent this year against 39.7 and 73.3 percent last year. “The slow pace of growth in real estate sector might be due to banks’ increased degree of caution in lending to the real estate sector in the last few months after the world economic recession began,” said Sudhir Khatri, chief executive officer of Development Credit Bank Limited.

The lending in export business saw a negative growth of 19.1 percent this year against positive growth of 36.4 percent last year. Lending for tourism sector (trekking, mountaineering and resorts) saw negative growth by 59.9 percent compared to last year’s positive growth by 20.1 percent compared the previous year.

“The overall picture of the commercial banks’ lending shows that economy is not performing well,” says Trilochan Pangeni, chief of research department at the NRB.

Source: Ekantipur

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