From The Editor


June 19, 2011, 5:45 p.m.

It seems that the Nepalese financial sector has had to go though a series of difficult time. After enjoying about a decade of healthy growth, Nepalese financial institutions are in a crisis again. From paying the lowest interest rate and then the highest interest rate, Nepalese banks are again fored to pay the high interest rate to depositors. They do not have adequate money to cope with the new situation. In the last three months, we have seen a series of events that have been sending a signal that there will be more difficult days ahead for the financial sector. Despite the last minute agreement among political parties to extend the tenure of the Constituent Assembly for three months, Nepal's political instability seems to be extending for a longer period of time. This wil definitely affect Nepal's overall economic growth. In the midst of an unstable government and unstable policies, investment opportunities are also shrinking. Interestingly, in a matter of three months, half a dozen banks and financial institutions (BFIs) have become troubled one after another. The collapse of the property bubble is seemingly pulling them down. As over Rs100 billion of their investment is locked up in the real estate sector, the BFIs are in an extremely vulnerable situtation. The case of Vibor Bikas Bank indicates the ultimate nightmare of bankers and regulators. A seemingly sound and healthy bank was suddenly forced to begging for money after some institutional depositors decided not to renew their matured fixed deposits. Is it the result of mere short term liquidity cunch or does it signal a systemic crisis? There is no doubt a stable banking sector will be necessary for the prosperity and overall development of the country. The more unstable the banking sector, the greater the risk of losing investors. This issue looks into the predicament with a focused coverage.

Keshab Poudel

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