December 11, Kathmandu. The corona virus (Covid-19), which has spread like a global pandemic, has given a tough competition to the country’s economy. The long-stalled economy is now flourishing. But the recent ‘aggression’ in the banking sector has added to the challenges facing the economy. Deposits are not taking place because banks have been aggressive in lending. Which affects the amount invested (liquidity).
Banks were not only forced to repay loans to industrialists who had reached out for loans, but were also forced to keep the sanctioned loans ‘pending’. Asking that such problems being seen in the economy take a formidable form, the Finance Ministry has made arrangements to treat 80 percent of the amount going locally as deposits.
Anil Keshari Shah, chief executive officer of Nabil Bank, says that this will increase the banking sector by Rs 50 billion. He said the tightening of imports by the National Bank of Nepal (NBN) would have a negative impact on some sectors but would play a vital role in bringing the economy back on track. “There is a problem with the economy, now it is getting back on track,” says Shah.
Here is an edited excerpt from a conversation with Shah, former president of the Nepal Bankers Association, about the country’s financial sector and overall economy:
Banks are now facing very tough liquidity crunch. Some have analyzed the problems seen in the banking sector as a general problem, while others have speculated that it is a bigger problem and that the problem will go away in the long run. What do you think is the position of the banking sector?
The banking sector is currently facing a big problem. The main problem we are looking at now is the liquidity situation. This is a difficult situation. Most banks have a CD ratio of over 90 percent.
Now is not the time to grow business. It is more convenient to add existing customers than to add new ones. The government has also shown interest in solving recent problems. Nepal Rastra Bank has also taken action. The Finance Ministry has made arrangements to allow local level money to count up to 80 per cent in deposits. NRB has tightened the import of certain items. This action has been taken to solve the problem.
The interest rates of all the banks are the same now that how long will this problem last. Unhealthy competition has declined. The problem is being resolved. I think the solution will come slowly.
‘Microeconomic data’ also shows that the country’s economy is not doing well. Looking at the indicators of the overall economy, what level of problem do you see?
Anil Shah’s income is the salary of Nabil Bank. I earn from one place and spend in many areas by buying vegetables, food, clothes. Similarly, the main income of the country was tourism and remittances. It is now reduced, but not spent. The banking sector has also increased its lending since the beginning of the current financial year.
With the opening of the lockdown, now a lot of business activities had happened, which became easy. Imports increased. This has increased the demand for loans. Could not collect. At the same time, the credit-to-deposit ratio (CCD ratio) was omitted and the loan-to-deposit ratio (CD ratio) came in, which also made it a bit difficult.
The demand for this specialty has increased significantly as a result of recent corporate scandals. There’s no need to panic. It’s time to dump him and move on. The government and NRB have also taken action. The issue of local deposits, import tightening and refinancing have been raised.
It’s time to tie the knot. I think this problem can be solved in three to four months. All sectors should play a role in solving this problem.
The data shows that the banking sector has invested heavily in the consumer sector. To revive the post-Covid economy, there should have been more investment in manufacturing, right?
For a long time we were forced to stay indoors due to fear of Corona. After the lockdown, the people of Nepal went on a walk. Purchased new mobiles and other materials. Dashain-Tihar, which has been celebrated for well over two years, was celebrated with pomp and circumstance this year. Not all of them are producers. Imports have increased, consumption expenditure has increased rapidly.
The production sector is also growing, the economy is also growing. There is no need to fear that debt is a major investment in consumption. It takes time for the productive area to recover. Growth is a bit slow, but don’t panic. I am not worried looking at the figures of how much debt has gone into which sector. The signs of the economy are good.
Foreign exchange reserves are under pressure. The process of going out of Nepali students has started. How easy is the work done by the government and the National Bank to bring the economy back on track?
About 50 billion deposits would be added to the arrangement made by the finance ministry to allow 80 per cent of the amount going locally to be counted as deposits. Out of the required 150 billion rupees, 50 billion rupees came. More money is needed.
At this time we all should move forward with the same goal. No one is talking about sustainable development, let alone the area of sustainability. The government, NRB, financial sector, private sector and all should have the same goal.
There may be some relief for the banking sector from the current import crunch. Maybe this is one of the reasons why they are performing so poorly. Hence such a policy has been adopted.
The NRB has put the brakes on the pace at which banks are investing. This has not been done to reduce the profits of the bank. NRB has taken this step so that there is no problem tomorrow. NRB will have to play a role even if the current flow of credit falls tomorrow.
The fact that it is difficult now does not mean that the policy is wrong. Keeping in view the long-term impact, everyone should make a master plan together. Foreign exchange reserves will also increase after the country’s economy comes back on track.
What is the impact of the government’s failure to spend on development on the banking sector?
This is not a problem today. This problem has not been seen only with the coming of the present government. Our spending has always been in the last quarter. The government’s inability to spend cannot be blamed on liquidity problems.
Every year there is a liquidity crunch, it becomes comfortable again as expenses increase. We, the banks need to be aware that such problems always arise. The government was not always silent about the delay. We have to do what can be done quickly.
A few days ago, the Finance Minister called the ministers of all the development ministries and asked them to spend 30 percent in PUs. Will development expenditure reach 30 percent in PUS?
In the board meeting of my bank it was decided to buy 10 plantation lands. Now I can find land and buy fat in a week? I can’t. Because, for that the procedures have to be completed. 21 days notice had to be issued, a week’s time had to be given for review.
Similarly, the government cannot spend as much as it should. Policies and procedures were to be followed by all. Parliament had to make a rule that it is possible to spend like this. Processes take time to complete. We need to see if there is any flaw in the process. The flaws need to be corrected.
At present, there is a government of elected representatives at the local, state and central levels. I have to go in front of people again tomorrow. It will be beneficial for them to show work by spending early. They don’t want to be disappointed if they don’t get the right pitch so invest in a good capo. There is no use in not spending. But why not spend? This is not something that the bank should understand, the government should understand.
When will industrialists and businessmen get easy loans from banks?
It is not possible to say exactly when the present problem will be resolved. My understanding is that when the problem is solved, we should work on the solution as soon as possible. It is in this context that we have talked about the master plan earlier.
Let us constitute a special task force under the leadership of the Finance Minister to solve the problems. Let us not only include the government, but also the NRB, the private sector and the financial sector. This can serve to solve the problems we see now and prevent problems in the days to come.
Earlier, when there was a problem in the heart, when there was a problem in the liver, now the whole body of the economy is sick. There are many diseases. So now we have to think about making the whole economy healthy, not just one part. So I have to form a task force covering all the areas.
Photo / Video: Aryan Dhimal / Online News