Kathmandu. The lack of investment capital (liquidity) seen in banks and financial institutions since the second quarter has started to be felt in mid-July.
At the end of the fiscal year, banks and financial institutions stop lending and prioritize recovery. But this year, their performance has been affected. Lack of capital in the market, slowdown in the real estate sector and fears of a possible economic downturn due to international factors have affected the recovery of loans, bank officials said.
Vice President of Nepal Bankers Association Sunil KC admits that recovery has been affected. KC, who is also the chief executive officer (CEO) of NMB Bank, said, “If the world goes into recession, the impact of worries will be on debt recovery.”
Due to lack of liquidity, banks have not sanctioned new loans for a long time and many entrepreneurs have already used their working capital up to their limits.
Even though the Nepal Rastra Bank (NRB) gave additional limit on working capital loan during the Kovid-19 epidemic, the limit has been reduced since last December.
On the other hand, entrepreneurs who have invested in real estate are facing problems in paying interest due to lack of business. Borrowers who have taken loans at low interest rates due to the epidemic of Kovid-19 have also faced problems in paying installments due to the increase in interest rates in a short period of time.
KC, vice-president of the Bankers’ Association, fears that the bank’s debtors will turn their attention to the informal sector while tightening investment in imports and consumption to control external sector imbalances.
He said it was doubtful whether the regular economic activity had shifted from the formal to the informal sector due to supply disruptions.
“Recovery is at risk of being affected by debtors’ focus on informal trade,” said KC.
For the past few months, the banks have stopped lending and focused on recovery, which has affected the business activities of the banks.
He said that another means of debt collection, collateral auction, has also been affected due to the slowdown in the real estate sector. “Even the sanctioned collateral has not been financed by the bank,” he said. Who invests in such risk? ‘
Manoj Neupane, CEO of Century Bank, also said that the decline in economic activity has affected the recovery of loans. “It’s difficult to repay a loan when the business can’t afford it,” he says. Neupane said that there was a problem in recovery as even the sector with no credit expansion and investment could not make a profit.
He said that there is no risk in fixed income loans but there are problems in recovery of business loans.
Banks had also capitalized on non-performing loans at interest when the NRB provided concessions during the Kovid-19 epidemic. But now that is not even a discount.
On the other hand, in the growing financial crisis, businesses will be further affected and banks will be in trouble as collateral auctions for loan recovery are not easy.
‘Loans flow on the basis of collateral. If the value of the collateral is higher than the valuation, there is pressure to save the collateral, ‘says Neupane.
However, he said that the collection of the last one week has been good and it does not show any sign of financial crisis.
The private sector is demanding continuity in facilities including refinancing and debt restructuring. There is a demand from the industrialists that such concessions should be continued as the industry, which was in trouble due to the epidemic of Kovid-19, is facing another problem without revival.
NRB had provided additional facility in current capital loan to the entrepreneurs during the epidemic of Kovid-19. Lately, NRB has tightened cash margin on imports as well as current capital loans. However, there is a demand from the private sector to make arrangements for borrowing working capital on the basis of need.
