Commercial Banks' Loan Disbursement Up by Rs. 59 Billion, Dashain Demand Falls Short of Expectations

Kathmandu. Commercial banks' loan disbursement increased by Rs. 59 billion as of Kartik 23 (November 8). Total loans, which stood at Rs. 53.51 trillion at the end of Bhadra, reached Rs. 54.10 trillion by Kartik 23.

According to the latest data, although banks continued to expand credit in the first 23 days of Kartik, loan demand did not rise as expected during the festive season. As of Kartik 18, commercial banks' loan expansion was Rs. 38 billion, which increased by an additional Rs. 21 billion in the following days. This indicates that the pace of credit expansion accelerated in the latter part of Kartik.

However, the anticipated increase in economic activity and additional borrowing by businesses for trade expansion targeting Dashain and Tihar has not materialized. Commercial banks' loan disbursement has shown fluctuations in recent months.

• In Shrawan, banks' loan disbursement had decreased by Rs. 2 billion.
• Loans, which increased by Rs. 61 billion in Bhadra, expanded by an additional Rs. 59 billion by Kartik 23.

This suggests that although there has been some improvement in loan disbursement, a gap remains between the pace of banks' credit expansion and the expected economic activity in the market. Compared to the month of Kartik in previous years, this year's credit expansion appears relatively weak.

Commercial banks had expanded loans by Rs. 56 billion in Kartik 2081 and by Rs. 40.68 billion in Kartik 2082. Although loan expansion reached Rs. 59 billion by Kartik 23 of the current year, the difference in time periods should be noted when comparing this data with the full month of Kartik in previous years.

Normally, during Dashain and Tihar, sales of consumer goods such as vehicles, food grains, clothing, and mobile phones increase. Businesses need additional capital to stock up, import, and distribute goods targeting the festivals. In such a situation, demand for loans from banks and financial institutions is expected to rise. However, as trade activities in the market could not expand as expected this year, its impact is visible on banks' loan demand as well.

The weak morale of the private sector, uncertainty about the investment environment, and disruptions in the supply system are seen as the main reasons behind the lower-than-expected market demand. The Rasuwagadhi checkpoint has been affected by floods in the Bhote Koshi River in Rasuwa, while the Kerung checkpoint has been damaged by landslides. Obstructions at the Tatopani checkpoint and damage to roads and infrastructure caused by continuous rainfall in Kartik have also created difficulties in the transportation of goods.

Although demand for goods in the market is expected to rise during the festive season, trade transactions have not gained expected momentum due to problems in imports and supply management. Since businesses take additional loans only after assessing market demand, sales potential, and returns on investment, uncertainty about trade expansion can affect banks' loan demand. As supply system disruptions affect the availability and sales of goods, its impact is also seen in the banking sector.

After the formation of the new government this year, it was expected that private sector morale would improve and investment and trade expansion activities would increase in the market. After vehicle bookings at Naima and Nada Auto Show appeared encouraging, it was estimated that transactions in the auto market would increase, thereby expanding banks' vehicle loans as well. However, the enthusiasm seen at the exhibitions does not seem to have translated into overall market transactions and loan demand as expected.

Banks have been reducing loan interest rates and introducing various schemes to attract customers. Although the availability of investable funds in the banking system and lower interest rates are favorable conditions for credit expansion, the latest data shows that this alone has not been able to increase loan demand.