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"Save for the future"



KIRAN PANDAY
Ajay Shrestha, CEO of Bank of Kathmandu, speaks to Nepali Times about the country's financial crisis, the prospects of recovery, and his own plans to increase deposits.

Nepali Times: Is the worst over?
Ajay Shrestha: The liquidity crunch since December was a result of over-aggression in lending, particularly in the real estate sector. Over-lending and all this was exacerbated by the shortage of currency notes, the withdrawal of deposits following the directive on declaration of assets. What is important is to learn our lesson from this. This wasn't an overnight phenomenon, the signs were there, and the banks were too late in reading it.

The Rastra Bank's intervention brought stability to the market by throwing a liquidity lifeline through REPO, but it isn't designed for long-term stability. In the long term we have to find ways to bring back deposits into the system and a more rational control over lending. After this year's rough patch we ourselves are in a consolidation phase, but we have a stable situation. Performance-wise it was never an issue.

So there is a light at the end of the tunnel?
We're not out of the woods yet. The core economic fundamentals are still not in good shape, there is a power crisis, GDP is stagnant, industrial production is not going up. The political fluidity is having a big impact on economic activity, the budget has not even been formulated. Government spending injects liquidity into the market.

Any chance of a recovery in the real estate market?
Real estate is stagnant, there is very little buying and selling taking place. There will always be a core demand for land and construction based on remittances. The inflow is still there, but it is being spent on assets, land and buildings. In the recent past it became a huge speculative bubble. Real estate was overplayed vis-Ó-vis demand. The only fear now is who will take that loss if the market comes back to its natural size: the seller, the buyer, the banks?

Is it going to be the survival of the fittest, then?
Survival now will depend on holding capacity. There will be growth and selling pressure and in the near future prices may appreciate. The realty market is caught between a demand-side push and supply-side push.

And other sectors?
The service sector is not doing too badly. Health, education and tourism require less capital and there is earning capacity. But industrial production has suffered because of the power crisis and labour problems. Infrastructure has potential but it has a lengthy gestation period. Hydropower projects are suffering from the interest rate hike because it was not a risk factor during the feasibility studies. With the power purchase agreements done, and only a fixed revenue source, it is a Catch-22 situation. Projects already in the pipeline will probably go through but new hydropower projects will be delayed. Bank of Kathmandu doesn't have much exposure in the real estate market, it is lending mainly to the service sector, and it was one of the first to lend in hydropower as part of a consortium supporting the Piluwa project.

What is your future strategy?
The real challenge now is reorient ourselves from lending to deposits. The strategy has to be to bring the households outside the Valley into banking and turn them from consumers to savers. We launched our 'Save for the Future' campaign five months ago.


Glass half-full

Are we beginning to see the end of Nepal's crippling liquidity crunch?

The Nepal Rastra Bank (NRB) governor certainly seems to think so.

Yubaraj Khatiwada said at a seminar last week that depositors were returning to banks, attracted by higher interest rates. This has reduced the inter-bank lending rate by up to 3 per cent, and on T-bill rates, which could also translate into a lowering of interest rates on loans.

"The rise in interest rates on deposits is one of the main factors for the favourable cash situation," Khatiwada said. He was also encouraged by Nepal's healthier balance of payments, and now wants to achieve an ambitious BoP surplus of Rs 9 billion. He thinks this can be done because of healthier tourism receipts, and a firming up of remittances following a slowdown in growth earlier this year.

Although the banking sector is encouraged by these trends, they are hedging their bets, and there is residual nervousness in the market. Banking sources estimate that deposits in banks have soared by Rs 40 billion in the last three months, but half of this is said to be the result of government spending ahead of the end of the fiscal year.

Many smaller private banks are still reeling under a decline in profitability caused by the drop in loans due to the higher interest rates. The liquidity crunch also affected their loan disbursement portfolios. "Any lowering of lending rates by private banks is not going to happen before Dasain," confided one bank executive.

Most businesses have failed to be enthused by the Monetary Policy and early signs of recovery. The main reason is the political instability that has delayed the budget and the laying out of the country's fiscal policy.

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1. Dirgha Raj Prasai

Dear Editor,

I read the analysis by Ajay Shrestha and NR Bank's governor

Yubaraj Khatiwada. Due to the corrupt and visionless leadership in regime, the

whole economic system of Nepal is collapsed.

It is the misfortune of Nepal that those at the helm of the government were never responsible towards the nation, devlopment┬áand people's welfare. The nation is in the ranks of the poorest nations in the world and this is because there are no sincere leaders and people├»┬┐┬Żs representatives. Leaders of the political parties are always tangled up in petty disputes and are carelessly playing with the prestige of the nation. Due to the misdeeds of the leaders who can even be called traitor, the Nepalese people are being deprived of the road to nation├»┬┐┬Żs development. Everything here is brought into practice by confusing the people but the leaders do not have the capability to distinguish right from wrong. When foreigners├»┬┐┬Ż direct the leaders, then all such works are implemented here.

If the political leaders destroy Nepal├»┬┐┬Żs natural and cultural identity for self-interest to fulfil their political revenge, where should we go to find-'Sovereign-Nepal' tomorrow? Nepalese nationalists are so furious ( ready to fight) that the situation looks like the calm after the storm.The national unification that concluded with the joint participation between the unifier Prithvi Narayan Shah and various ethnic groups should not be insulted by anyone. Let├»┬┐┬Żs not sell the nation like Lendup of Sikkim by becoming the broker of foreigners. It is my heartiest suggestion that this sovereign Nepal should continue to live with the joint efforts of the King, patriots in the political parties and Nepalese people.

Thank you.

Dirgha Raj Prasai

Kathmandu.

 



2. ang kaji
Our socio-economic is changing slowly. The problem is same age old. Too much controls of bureaucrats by same old old group of people. As long as they dont change, small dots of pop up  make no difference in radar.

Secular constitution is a first move. Now we need more participant of minorities at the domain. Involvement and transparency are the only way to make sure voices of all Nepali are heard equally. Lets hope our leaders realize this and know who they work for: Nepali.


3. Kaji
Thanks to Ajaya Shrestha for a sober and measured intrview, unlike the self-promotion of Mr Shah in the same issue. Ajayaji is right, there are longterm structural problems that need to be corrected if we are to come out of the financial crisis.

LATEST ISSUE
638
(11 JAN 2013 - 17 JAN 2013)


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