Banking sees liquid assets plummet

The banking system of the country has witnessed a decline in liquid assets (cash or anything else that can be converted into money) in the first four months of current fiscal year. A latest Nepal Rastra Bank (NRB) report on country's macro-economic situation shows banking sector's liquid assets declined by 10.6 percent to Rs. 167.8 billion against the growth of liquid assets of 2.5 percent in the same period last year. The cash reserves in the banking system also declined by 19.5 percent.

The commercial banks have been stringent to provide new credit due to liquidity crunch. Although the increased lending in the real estate sector has been attributed as one of the reasons for current liquidity crisis, the credit that went to the sector remained almost the same of Rs. 5.5 billion during four months in both years. The central bank has already capped the lending to realty sector.

The banking credit to the production sector witnessed an increase of just 4.1 percent (Rs.3.6 billion) in the review period compared to the growth of 8.3 percent (Rs.6.3 billion) in the same period last year exposing how productive sector is facing problems.

The inflation has once again moved up. After seeing a decline for three months, inflation again has touched 9.9 percent during the first four months of current fiscal year. It was at 9.3 percent a month earlier. However, the inflation has not crossed the single digit mark against 14.5 percent during the same period last year. The price of both food and beverage and non-food items slightly went up in the fourth month contributing to overall price rise, according to the NRB report on country's macro-economic situation. The price of food and beverages saw a rise of 16.4 percent and the price of non-food items went up by 2.2 percent during the period.

The prices of sugar and sugar-related products increased at the highest rate, 50.6 percent, against an increase of 37.6 percent last year. Likewise, prices of vegetables and fruits have increased by 38.7 percent in sharp contrast to last year's decline of 0.9 percent.

NRB's report shows remittance inflow growing by just 6.6 percent against the significant growth of 65.9 percent last year. This is one of the factors for deficit in Balance of Payment (BoP) by Rs. 20.49 billion in the review period. BoP was at surplus of Rs. 11.86 billion last year. The gross foreign exchange reserves also went through a fall of 11.1 percent staying at Rs. 248.89 billion. Exports declined by 23.7 percent in the review period against a surge of 38.1 percent last year. Exports to India plunged by 19.1 percent and to other countries by 30 percent.

Source:eKantipur