Kathmandu. Banks and financial institutions (BFIs) have significantly expanded the number of trust receipt loans till mid-March of the current fiscal year.
During this period, such loans amounted to Rs 154.28 billion. This is an increase of Rs 23.29 billion compared to the same period last year. In the same period of the previous year, loans under the heading of import and export were limited to Rs 130.99 billion. This increase in the space of a year clearly indicates that the banking system’s debt structure is tilting towards short-term trade finance.
The size of the overall banking system has also expanded during this period. As of mid-March, banks and financial institutions have collected deposits of more than Rs 7.78 trillion and extended loans worth Rs 5.84 trillion. In the same period last year, deposits stood at Rs 6.769 trillion and loans were around Rs 5.455 trillion. This shows that the deposit base in the system is being strengthened and there are enough resources available for credit expansion. However, the question of where the credit is being concentrated remains even more important.
Looking at the structure of import-export credit, the commercial banks seem to be completely dominant. They have disbursed more than Rs 154 billion in such loans. This is an increase of about Rs 23 billion compared to the previous year.
The total deposit of commercial banks has reached Rs 70.16 trillion and loan disbursement has crossed Rs 5.16 trillion. These figures show that banks are in a comfortable position to manage liquidity, emphasizing on short-term and relatively safe commercial loans. Trust receipt loans are considered to be relatively easy to manage risk as the bank provides short-term facilities to importers when importing goods. But this trend also exposes the structural weaknesses of the economy.
In an import-oriented economy like Nepal, the over-expansion of such credit risks increasing consumption and trade-based economic activity rather than the productive sector. This could widen the trade deficit and put pressure on foreign exchange reserves.
There are concerns that such loans could further encourage imports as compared to exports could affect the long-term economic balance.
The role of development banks has been very low in this area. Till mid-March, they have issued loans of only Rs 10 lakh under the title of import and export. Whereas in the same period last year, such loans were zero. However, their total deposits have reached Rs 629 billion and loan disbursement has reached Rs 538 billion. This shows that development banks are mainly focused on medium- and long-term projects, local infrastructure or small-medium enterprises.
Similarly, the finance companies have not shown any participation in import-export loans. Till mid-March of the current fiscal year, they have collected deposits of more than Rs 137 billion and disbursed loans of more than Rs 104 billion.
Last year, the situation was the same. This indicates that the business scope of finance companies is still limited to consumer loans, hire-purchases or small loans.
