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VOL. 03, NO. 12, Nov. 13 2009 (Kartik 27, 2066) |
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BANKS & FIs
Banking On Fund
Along with the explosion in the number of banks and financial institutions in recent times, there has been a rapid swelling of funds the banking system has collected. In recent count, the banks and financial institutions were sitting atop whopping Rs 500 billion of funds. That apart, the loosely controlled Saving and Credit cooperatives also had additional Rs 65 billion of funds with them. However, due to absence of proper investment climate and opportunities, many say that the funds have not been put to productive use.
By SANJAYA DHAKAL
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NIB : Bank with pride |
Recently, an interesting cartoon appeared in a broadsheet daily newspaper. It showed a baffled villager face to face with bankers who had swooped down his village looking for house to open new branch.
The cartoon, though a bit far-fetched, was quite telling about the rapid expansion of the financial market in the country.
While the remote villages may not yet be attractive for the banks, the urban and semi-urban centers are literally ‘swarming’ with banks and financial institutions of all kinds.
A casual walk along the streets in Kathmandu valley will provide more than enough evidence of the banking boom.
The number of A class commercial banks alone has reached 27. The development banks and financial institutions have similarly multiplied.
The report by the Nepal Rastra Bank (NRB) – the central bank – also reveals the trend of opening financial institutions in the country.
Two and a half decades ago, there were only two commercial banks and two development banks in the country.
However, the adoption of economic liberalization policy in early 1990s opened the floodgates.
The NRB report, including the data till mid – January 2009, states that there are altogether 235 banks and non- bank financial institutions licensed by the central bank that are in operation. “Out of them, 25 are A class commercial banks, 59 B class development banks, 78 C class finance companies, 12 D class micro-credit development banks, 16 saving and credit co-operatives and 45 NGOs,” the report states.
In the subsequent one year, a couple of development banks have been upgraded to class A category.
Surfeit Of Funds
Finance Minister Surendra Pandey has gone on record saying that the financial system currently has plenty of funds.
“The banks and financial institutions have Rs 500 billion of fund with them. And the cooperatives also have around Rs 65 billion,” he said at a recent interaction at the Reporters’ Club.
His remarks correspond with the statements made by the bankers themselves.
Shashin Joshi, president of Nepal Bankers’ Association (NBA), said that of the total deposits in the banks and financial institutions, they have made loan investments to the tune of Rs 450 billion.
The NRB report states that along with the increase in number of Financial Institutions as well as volume of transactions, the total assets/liabilities of the financial system, too, has witnessed continuous growth over the last seven and half years.
During the period 2001 to mid – January 2009, the total assets of whole financial system increased by 14.97 percent per annum and reached to Rs.829293.3 million in mid – January 2009 from Rs.273946.2 million in mid – July 2001. In mid – January 2009, the total assets registered a growth of 17.41 percent compared to 21.26 percent in mid – July 2008.
The structure of financial assets/liabilities shows that Commercial Bank alone hold more than 80 percent of the total assets and liabilities of the financial system. As of mid – January 2009, Commercial Bank group occupied 82.3 percent of total assets/liabilities followed by Finance Companies 9.4 percent, Development Banks 6.0 percent, Micro-credit Development Bank 1.7 percent and others 0.6 percent.
Apart from banks, the government itself is also basking in the glory of huge increase in fund thanks to revenue growth.
“In the first four months of this fiscal year alone, we have collected over Rs 38 billion revenue,” said Keshab Acharya, senior economic advisor at the Ministry of Finance.
Furthermore, the revenue collection is growing at an average of 50 percent compared to the previous year.
It was, therefore, not surprising to find Finance Minister Surendra Pandey under little pressure despite the looming budget crisis.
Thanks to political wrangling, the budget has not been passed by the parliament even four months after it was presented. Currently, the government is running out of legal validity to spend the budget.
As per the advance expenditure bill passed by the parliament, the government can lawfully spend only one-third of the budget allocated for each title.
As such, the government has run out of lawful limit in paying salaries to ministers and parliamentarians. From mid-November, it is set to cross the limit in paying salaries to tens of thousands of employees.
Despite the squeeze, Finance Minister Pandey recently said that he had no problem regarding funds.
“We have enough funds and revenue is also coming in handsomely. The only problem is political,” he said.
No Opportunit
Even though the financial system has enough funds, the absence of proper investment climate and opportunities threatens to adversely affect the economy.
In recent years, the astronomical rise in inward remittances sent by overseas workers – this year they sent Rs 200 billion worth of remittances – has ensured that the financial system remained flush with funds.
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NRB : Challenges to monitor |
But the very reason that these workers had to leave their country for earning is now throttling the proper investment climate of the money they have sent home.
The bandhs and strikes, unending political squabbling, labor unrest, and so on have hurt the investment climate.
Consequently, many banks and financial institutions and most cooperatives have invested in unproductive sectors like real estate and share.
“The NRB has, time and again, alerted the banks about the risk of investing heavily in real estate and shares. These bubbles can burst anytime,” NRB governor Bijaya Nath Bhattarai had said recently.
But the banks are unwilling to accept that they have invested heavily in such risky sectors. “Only few banks have made heavy lending in real estate sector. In totality, only 14 to 15 percent of total lending is in real estate. Likewise, the investment in shares is less than 10 percent,” said Shashin Joshi, president of NBA.
Economists say that funds would be better utilized if they could be invested in job-creating areas such as huge infrastructure development, factories, industries and hydropower.
“But the government has not been able to create that climate,” says economist Dr. Jagadish Chandra Pokharel.
A former vice chairman of National Planning Commission (NPC), Dr. Pokharel added that amid the current uncertainty over budget even the government-sanctioned projects will not be attractive to investors.
Even within the limits of the advance expenditure bill, the government can spend up to Rs 35 billion in development expenditure – of the total Rs 106 billion set aside for development this year.
But till date, the government could only spend a paltry Rs 2.3 billion in development.
As such, despite the huge funds, the same has not been able to engineer the economic growth.
“This Uncertainty Is Critical”
Dr. Jagadish Chandra Pokharel
The government says it has enough funds. But the development expenditure is very little. What do you say?
The funds have not been properly utilized. Besides, due to prevailing uncertainty over budget, no investor is likely to come forward.
What do you mean?
Even though the government may call tender for development projects, no contractor will come in unless the full-fledged budget is passed.
What about the impact on investment climate?
The delay in approving the budget will affect the overall budget cycle. Tenders will be delayed. Investors will fretter. This uncertainty is critical.
