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Quantitative Easing (QE) is a style of unconventional monetary policy in which the central bank purchases long-term securities from the open market to extend money supply and encourage lending to local firms and individuals. This involves the government using the newly created money to shop financial assets held by banks, like corporate and government bonds. Buying these securities adds new capital funds to the economy and serves to lower interest rates by bidding up fixed-income securities. It acts as a spur for economic activities and improves domestic pecuniary resources to recover from a slump or depression.

In this pandemic, QE could be a way to keep the economy humming and save people’s lives and livelihoods. People get paid in their jobs and when firms run out of money, the easiest way of lowering costs is to make laborers redundant. As unemployment rises, poor laborers will not be able to sustain their livelihood, leading to malnutrition, and other mental and physical health problems. In a third-world country such as ours, the dependency ratio is highly unfavorable. Men are the backbone of houses, and when they are laid off an enormous burden falls on the family.  

According to the World Bank, 79.85 percent of people in Nepal were living in rural areas as of 2019. Nepal, a country of 28.6 million, has also sent over 10 percent of its people of productive age group to work far away. They send money in the form of remittance back to their country. These migrant workers too may lose their jobs.

The Nepal Association of Foreign Employment Agencies (NAFEA) estimates the proportion of job losses for Nepali workers from Covid-19 as follows: 30 percent in the UAE and Malaysia, 20 percent in Qatar and Saudi Arabia, 15 percent in Kuwait, 12 percent in Bahrain, and 10 percent in Oman. Many families in rural areas are almost fully dependent on remittance migrant laborers send home. If the employment rate abroad keeps falling, these families will suffer a direct economic hit.

A recent World Bank report also projects a 14 percent decline in remittances to Nepal in 2020. The corona-related global slowdown and restrictions have begun impacting movement again. In this situation, the International Labor Organization (ILO) suggests direct cash subsidies are the only way out. Raising funds is an option in Nepal but many people who are willing to donate are also suffering huge losses. If it would have been a month or two, frictional unemployment can be disregarded. In this case, it will be a cyclic unemployment and recovery may take a lot of time.

Quantitative easing is one of the most sustainable ways in which the government can allocate money for poor and needy people. Many countries used this method to boost their economies following the global financial crisis in 2008 and the economic recession that followed.

Quantitative easing usually involves a country’s central bank purchasing longer-term government bonds, as well as other types of assets, such as mortgage-backed securities. Banks are willing to buy bonds issued by the government and private companies because they pay out a lump-sum interest rate when they mature. By buying these financial assets from banks, the government can increase the quantity of money banks have to lend in the form of subsidies to the poor and other transfer payments such as unemployment benefits. It will also help with the ‘temporary infrastructure’ needed to accommodate patients fighting this economically and emotionally draining war against covid.

Increasing the supply of money lowers the cost of money, the same effect as increasing the supply of any other asset in the market. This would lead to lower interest rates in which case banks can lend on easier terms to the poor and the needy. It is about time Nepal’s financial institutions and the federal government sat down to find a way out of this unfolding economic crisis.

The Covid-19 pandemic has hit the country’s economy hard yet its banks and financial institutions (BFIs) seem immune. Their third quarter reports show they are making profits even as other sectors suffer unprecedented losses. 

Another sector that has largely been unaffected and instead boomed during the Covid-19 scourge is the equities market. Investors in Nepal’s lone stock index NEPSE have been enjoying a bullish run for around a year. The index has now crossed 2,900 points compared to the high of 1,200 in June last year. The daily turnover, which was around Rs 200 million a year ago, has reached Rs 15 billion.

How was this possible? It was only a matter of time before Nepal Rastra Bank officials put two and two together. They suspected the banks had heavily invested in the bullish market to make quick money—deviating from their main business of accepting deposits and issuing loans. This may be why some banks and BFIs posted unusually high profits even amid excess liquidity created by low demand for loans. 

The central bank came up with a directive to address the issue. It said the BFIs could not invest in microfinance institutions, and they needed to hold the shares they bought for at least a year. This, the central bank believes, will discourage BFIs from speculative trading and further fueling an unsustainable bullish trend in the market.

The shares the BFIs traded were mostly of insurance, microfinance, and hydropower companies.  

Finance companies under scanner

While commercial and development banks may have made some profit by trading shares, finance companies have made the most out of lax regulations, greatly boosting their earning per share (EPS), a popular indicator investors use to decide to buy or sell a stock.

“Some finance companies have earned more from trading stocks than from their income interest and service fees,” says Basant Raj Lamsal, chairman of Nepal Microfinance Bankers Association. 

Although the NRB directive has set the microfinance sector on a bearish trend, the association welcomes the move to stop BFIs from investing in microfinance companies, adds Lamsal. 

The BFIs hereafter can only sell their stock investments equivalent to their primary capital in one fiscal year. (Primary capital includes paid-up capital, general reserve fund, and accumulated profit and loss.) 

But they can sell stocks bought before NRB’s directive by the end of this fiscal (mid-July). 

Investors have also welcomed the central bank’s decisions. Says Nepal Investment Forum’s chairman Chhote Lal Rauniyar, “BFIs were undoubtedly making money by trading stocks and it was a deviation from their primary role of providing banking service.” 

Likewise, the May 25 directive restricting BFIs from investing in the secondary market shares of microfinance institutions doesn't apply to BFIs’ loan investments in the deprived sector. By mid-January next year, BFIs need to get shares in microfinance companies off their books, according to the NRB directive. 

The BFIs were making money by trading in their own shares, as most of them also own promoter shares in microfinance companies.

Nabil Bank CEO Anil Keshary Shah welcomed the central bank’s directive saying that BFIs should not be involved in the speculative market. He however denied that his bank was into it. 

“We have sold some of our stakes in microfinance companies as required by NRB’s capping measures for BFIs. But those were long-term investments,” says Shah. 

Investors had feared the directive would hurt the share market, which has been breaking records every week. “But we haven’t seen any negative effect of the directive till date. The market’s bullish trend continues,” adds Rauniyar. 

Investors in bank scrips hope for good returns this year, despite the new restrictions. “We hope the BFIs’ fourth quarter financial statements will bring more good news as they have already booked profits in the equity market by selling shares of microfinance institutions and other high-value shares,” says Rauniyar. 

The central bank’s focus on long-term investments was also supported by the government, which introduced dual tax rates for profits made in the share market. As per the new budget, individual stock traders now need to pay a 7.5 percent capital gain tax for stocks they held for less than a year. The tax rates for those who sell their stock after holding on to it for a year has been fixed at 5 percent. 

Be that as it may, nothing, it seems, will stop the NEPSE bull-run in the near future.

In the 17th annual general meeting of Nepalese Young Entrepreneurs' Forum (NYEF) held virtually this week, the core values of the organisation: to encourage and motivate entrepreneurs to strive to innovate and create new ways of solving problems, thereby creating a positive impact for the society, as emphasized. 

As entrepreneurs, one should strive to bring positive transformations in society by embracing change, a press statement issued by the company reads. In the meeting, a new national governing council was formed with Udeep Shrestha as president, Prakash Dev Palikhe as immediate past president, Ritesh Lamichhane as first vice-president, Sahara Joshi as second vice-president, Nivita Pradhan as woman vice-president and Sumod Saiju as vice-president of Chapter Coordination. Similarly, Pavitra Gautam, Kushal S Shrestha, Sudip Ghimire, Reecha Shrestha and Krishna Sapkota were elected members of the council.

Skoda, the European automotive brand having 125 years long history, is set to launch the all-new Skoda Kushaq in Nepal in the second week of July. The new mid-size SUV will be powered by the most awarded Turbo-charged Stratified Injection (TSI) that produces the highest torque in the segment.

Skoda Kushaq will be the first made-in-India SUV that is underpinned by the VW group's much popular MQB-A0 platform. It will be powered by a 1.0L TSI engine that produces a power of 115 PS and torque of 175 Nm which is best in the segment. It will be available with a 6-speed manual and automatic transmission. Hyundai Creta and Kia Seltos are the core competitors of Skoda Kushaq.

150 bookings till date

“The advent of Skoda Kushaq in Nepal has excited the SUV-lovers,” says Raunak Agarwal, Executive Director of Skoda Nepal, “Till now, we have over 500 inquiries in our social media and showroom and 150 of them have already been booked. We are overwhelmed by the response from customers.”

According to Agrawal, Skoda Nepal has a target of selling 800 units of Kushaq in the coming fiscal year. “We believe that the highest torque in the segment, longest wheelbase and other first in class features might have attracted customers to Kushaq,” he adds, “We have been witnessing that mid-size SUV segment is constantly growing as we hope that this new product will win a major share as it is launched in Nepal.”

The most awarded TSI engine

The all-new Skoda Kushaq will have TSI petrol engine from the Volkswagen group that won the “Engine of the Year Award” for the eighth consecutive time. This makes TSI the most successful engine.

The jury for this award is made up of 65 motoring journalists from 32 countries. The jury said about Skoda Kushaq, “TSI Engine not only attained an overall victory, but also won the ‘Best Green Engine' award. This shows that driving fun and fuel efficiency can certainly be unified in one package.”

Compared to its predecessor, fuel consumption and CO2 emission values of the TSI engines were reduced to 9 per cent in part also by such measures as reducing internal friction, lowering weight and optimising thermal management. 

“Their combination of reduced displacement, direct injection and intelligent engine boosting enables top dynamic performance while keeping emissions and fuel consumption low. TSI engines are genuine trendsetters,” Dr Rüdiger Szengel, Head of Volkswagen Petrol Engine Development, says. 

Volkswagen Group is the global leader in charging strategies for engines with direct fuel injection, and to date it has produced over 3.8 million TSI engines at five production sites worldwide. 

Best-in-segment loaded Kushaq

At a glance, the Kushaq gets a smart design with decent proportions for an SUV. Highlights include the familiar Skoda butterfly grille, Karoq-inspired LED headlamps and fog lamps, L-shaped LED tail lamps with crystalline effect, and 17-inch alloy wheels. Upto five body shades will be on offer: Candy White, Brilliant Silver, Carbon Steel, Honey Orange, and Tornado Red. 

While the cabin is neat and minimalistic, make no mistake, it has got a vast number of features. They include a 10.1-inch touchscreen infotainment system with Android Auto and Apple CarPlay, a 6-speaker sound system, ambient lighting, connected car tech, wireless phone charger, ventilated seats, and automatic climate control. Safety features will include six airbags, electronic stability control, parking sensors with a rear-view camera, ABS with EBD, and hill hold control.