SANGAM

A Look At The Banking Sector Business
sangam prasain

The growth of the banking industry in Nepal has much significance for the other sectors in the country. Despite a decade long conflict, the banking and financial sector accomplished impressive returns both in terms of business transactions and size of assets and market.
During the last two decades, the number of banking and financial institutions has grown significantly.
The Nepal Rastra Bank (NRB), the central bank of Nepal, report states that there are altogether 235 banks and financial institutions currently operating in Nepal. Of those, 23 are ‘A’ category commercial banks, 58 ‘B’ class development banks, 79 ‘C’ class finance companies, 12 ‘D’ class micro credit development banks, 16 saving and credit co-operatives and 47 NGOs.
Banking sector, being the largest financial sector, alone holds more than 80 per cent of the total liabilities of the financial system. As of mid-Jan 2008, commercial banks alone occupied 82.11 per cent shares, the finance companies with 10.52 per cent, development banks 4.72 per cent, micro credit development bank 1.77 per cent and others 0.88 per cent shares.
The banking and financial institutions ballooned in the Nepalese economy after the economic liberalization policy in Nepal initiated during the mid-1980s. From that period on the banking and financial sector recorded rapid growth.
Historically, the first conventional bank in Nepal was Nepal Bank Limited established in 1937 A.D., followed by Rastriya Banijya Bank in 1966. These two banks were the pioneers of the Nepalese banking industry and only the players in the banking industry.
During this period the financial market was barred for private investors but after mid- 1980s, the economic liberalisation provided extensive opportunities to the private investors, as a result the country witnessed the grand leap of the banking and financial institutions.
The number of commercial bank branches currently operating in the country has reached 574. Of the total banking branches, more than 46.34 per cent (266) bank branches are allocated in the central region. There are 122, 117, 38 and 31 bank branches currently operating in the eastern, western, mid-western and far-western regions respectively.
The total source of the funds in the commercial banks increased by 14.18 per cent as of mid-January 2008 with a total Rs. 557,142. 3 million.
Similarly, the deposit mobilisation of the commercial banks increased by 11.12 per cent compared to 6.73 per cent growth in the same period last year. It reached Rs.375,035.7 million from Rs.337497.2 last year. On an average 10.98 per cent annual growth rate was observed during the six year period from 2001 till 2007.
During the first six month of 2007/08, the current, savings and fixed deposit were accelerated by a high rate of 13 per cent, 10.21 per cent and 6.63 per cent compared to 6.30, 6.59 and 6.55 respectively during the same period last year.
Loan and Advances, the major component of uses of fund, constituted 48.86 per cent. The investment and liquid funds registered at 18.10 per cent and 8.12 per cent. This component was registered to 46.66 and 8.98 percent respectively last year. in the first six month of the current fiscal year. The net profit of the commercial banks increased by 24.43 per cent. The banks earned Rs.4225.6 million during this period.
Similarly, as for the development banks, the assets of the development bank in the first six month of 2007/08 increased by 41.49 per cent as against the 62.30 percent decline in the corresponding period last year.
Of the liabilities, deposit constituted the highest share of 67.35 per cent followed by capital fund 17 per cent and borrowing 8.54 per cent in mid-January. In the current fiscal year, the capital fund, borrowing and deposit of the development banks, increased by 34.23 per cent, 22.69 per cent and 40.48 per cent respectively.
Likewise, the performance of finance companies was impressive in the first six months of the current fiscal year. The total assets of the finance companies increased by 33.48 per cent and reached Rs. 71365.76 million from Rs. 534,66.3 million last year.
Of the total liabilities, borrowing of the finance companies increased significantly by 162.93 per cent and reached Rs. 9122.57 million from 3469.54 million. The total deposit increased by 18.46 per cent in the same period. In mid-January 2008, the total deposit reached to 40884.67 million from Rs.3469.54 million last year. The capital fund grew by mere 4.25 per cent in the first six month of the current fiscal year and reached to Rs. 5608.37 million from Rs.5379.8 million last year.
In the micro credit development banks, the total assets of the micro credits increased by 16.70 per cent and reached to Rs.11998.94 million from rs.10281 million in mid July 2007. Similarly, the rural development banks involved with the micro credit activities rendered satisfactory. During the first six month of 2007/08 deposit and borrowings increased by 4.35 and 5.64 per cent respectively, while the capital fund decreased by 10.61 per cent. Capital fund, borrowings and deposit accounted to Rs.302.5 million, 2901.5 million and 547.1 million respectively. Likewise the liquid funds, investment and loans and advances stood at Rs.194 million Rs.1595.9 million and Rs.1845.6 million respectively.
In the cooperatives and NGOs, the capital fund increased by 5.50 per cent compared to 6.51 per cent in the previous year. The total deposit grew by slower rate of 4.45 per cent as against the 14.35 per cent growth in the preceding year. By the end of the mid January 2008, it reached Rs.2658 million.
The loans and advances increased by 9.13 per cent and reached to Rs.2433.58 million from Rs.2229.81 million against the previous year. Similarly, liquid fund and investment increased by 26.55 per cent and 12.91 per cent in the same period last year, by the end of mid January 2008 liquid fund and investment reached to Rs.619.75 million and Rs.200.65 million respectively.