Nepal Rastra Bank (NRB) is likely to miss its target of increasing private sector lending, as loans issued by banks and financial institutions (BFIs) in the first seven months of FY 2024/25 stood at less than half of the annual target. This shortfall is primarily due to sluggish lending by BFIs amid the ongoing economic slowdown.
According to the NRB’s Current Macroeconomic and Financial Situation Report, BFIs issued loans worth Rs 283.46 billion, reflecting a 5.6 percent growth. In comparison, private sector lending had increased by 4.1 percent to Rs 197.21 billion during the same period last year.
Of the total lending, 63.8 percent was issued to non-financial institutions, while 36.2 percent was taken by the household sector. Among BFIs, commercial banks’ credit flow increased by 5.9 percent, whereas development banks and financial companies saw growth rates of 3.1 percent and 5.2 percent, respectively.
Last year, NRB had set a private sector lending growth target of 11.5 percent but achieved only 5.8 percent. Despite missing the target, NRB increased the goal to 12.5 percent for the current fiscal year through its monetary policy announcement.
Despite reducing interest rates, BFIs have struggled to boost lending due to weak loan demand, driven by low business confidence amid economic uncertainty. Commercial banks have cut their average loan interest rate from over 11 percent to 8.55 percent within a year.
Bankers have cited rising bad debts and non-performing loans as additional reasons for their reluctance to issue more loans. “Given the situation, the central bank has also tightened regulations, which has further impacted lending by BFIs,” said a banker.
During the review period, BFI loans on imports surged by 69.5 percent, while the country’s import expenses rose by 10.1 percent to Rs 988.59 billion. Loans against shares increased by 27.76 percent to Rs 115.11 billion, with commercial banks’ margin lending growing by 32.39 percent (Rs 22.78 billion). Analysts attribute this trend to slow growth in the real economy, prompting investors to seek opportunities in the share market.
Suman Pokharel, Deputy Chief Executive Officer of Global IME Bank, noted that declining BFI interest rates have also encouraged increased investment in the stock market.
In terms of sector-wise lending, BFIs’ loans increased by 9.5 percent in the manufacturing sector, 9 percent in construction, 7 percent in services, 6.7 percent in transport, communication, and public services, and 4.4 percent in wholesale and retail.
