Private sector credit by banks and financial institutions expanded by eight percent, or Rs 407.62bn, in the first 11 months of the fiscal year, marking a significant recovery from 5.1 percent growth in the same period of fiscal year 2023-24. Credit growth fell to 3.4 percent in the first 11 months of 2022-23 from 13.5 percent in the same period of 2021-22 and 24.9 percent in 2020-21.
According to Nepal Rastra Bank (NRB), credit expansion, which had been on a downward trend since 2020-21, has shown signs of recovery in recent years. Although credit growth has reached the highest in the past three years, it is still below the growth target set by the monetary policy.
The Monetary Policy for 2024-25 has targeted 12.5 percent credit growth.
The central bank has attributed the uptick in credit flow in the current fiscal year to a gradual improvement in economic activities after a prolonged slowdown.
During the Covid-19 pandemic, NRB had introduced a range of relief measures, which led to a surge in credit growth in fiscal years 2020-21 and 2021-22. Credit flow increased by 26.8 percent in 2020-21 compared to 13.6 percent in 2019-20. However, credit flow started slowing after the central bank tightened monetary policy in subsequent years. It fell to 13.5 percent in 2021-22 and 3.5 percent in 2022-23. It slightly improved to 5.75 percent in 2023-24.
According to the central bank, industrial production loans grew by 8.2 percent, construction sector loans by 12.9 percent, wholesale and retail trade loans by 5.2 percent, transport, communications, public services loans by 13.5 percent, service industries by 8.8 percent, and consumption loans by 10.9 percent in 11 months of 2024-25.
Among loan types, term loans grew by 5.1 percent, while margin loans jumped by a whopping 42.8 percent. At the same time, trust receipt loans rose by a massive 62.2 percent, hire purchase loans by 5.5 percent, cash credit by 0.6 percent, real estate loans (including personal housing) by 5 percent while overdraft loans went down by 13.2 percent.
Economists say the government's low spending capacity and the tendency to ramp up spending only in the final month of the fiscal year (mid-June to mid-July) have constrained demand. However, they said that rising imports in recent months have led to an increase in credit uptake.
According to the NRB, merchandise imports grew by 13.1 percent to Rs 1,644.8bn in the first 11 months of the current fiscal year 2024-25, compared to a decline of 1.8 percent in the same period of the previous fiscal year.
