Ashok Rana is the President of Nepal Bankers’ Association (NBA) and CEO of the Himalayan Bank Limited. He spoke to SANJAYA DHAKAL about the situation of banking system following the recent crisis. Excerpts:
Will the recent NRB measures solve banks’ problems?
It will definitely help reduce the problem. Main thing is that until the budget comes, the liquidity crisis won’t be fully resolved. We are not witnessing any increase on deposit collection. But the refinancing facility offered by the central bank to Vibor was necessary.
Is the current crisis only due to liquidity crunch or are we facing systemic failure?
It is bit of both. Due to excessive reliance of some institutions on the real estate loan, they were dependant on few institutional depositors for liquidity.
Does that mean the BFIs will be falling like house of cards?
That won’t happen. But they will come under stress turn by turn. If the budget comes on time, then such crisis can be averted.
Is liquidity the sole reason for this crisis?
Not at all. Historically, we were witnessing increase of deposits by 20 percent. That has come to a grinding halt. But the loan/credit growth has not decreased. And in case of many financial institutions, huge chunk of such credit went to real estate sector. They are long term investments. Even then, they were giving fair turnovers. But after the government and central bank introduced stringent measures to limit real estate growth, this sector started performing badly. And the customers started relocating their liquid assets to informal sector.
How much investments have the BFIs made on the real estate sector?
That is the key question. In case of A class commercial banks, they are not more than 20 percent of total lending.