Weekly Economic Update


Oct. 13, 2012, 5:45 p.m. Published in Magazine Issue: Vol. : 06 No.-08 Sept. 28-2012 (Ashoj 12, 2069)

More Nepalis traveling abroad this Dashain  

The number of Nepalis leaving for various overseas tourist destinations during the festive season is set to grow by around 40 percent if sales figures disclosed by the travel agents is anything to go by. Travel agents that have unveiled special outbound packages targeting Nepali tourists for Dashain and Tihar said they have witnessed 40 percent growth in number of sales this year. Agencies that sold 40 to 50 packages last year said they had already sold 55 to 65 packages.


Private vehicle insurance profitable business: Insurers 

The private vehicle insurance business is the most profitable among a range of businesses conducted by insurers via the motor-vehicle portfolio, shows a latest survey carried out by the Insurance Board -- the insurance sector regulator.


A total of 17 non-life insurance companies collected premium of Rs 3.28 billion by selling private vehicles insurance policies in the 28-month period since the third-party insurance coverage was made mandatory on Sep 1, 2009. But these companies spent only 25.5 percent of the amount, or Rs 837.59 million, settling claims.


In contrast, 93 percent of the premium collected through sales of public vehicle insurance policies was expended on extending compensation, which includes payments released for the purpose of covering third-party insurance claims and claims related to loss or damage of vehicles.


Non-life insurance companies earned a total premium of Rs 1.68 billion through sales of public passenger vehicle insurance product in the 28-month period, while Rs 1.57 billion was spent on settling claims.
“If 15 percent of the premium amount that are extended to agents, reinsurance cost and administrative costs are factored in, insurance companies seem to be making net loss from public vehicle insurance business,” a high-ranking official of the Insurance Board told Republica on condition of anonymity.


Realty shows signs of revival 


 The price cuts and other offers that land and housing developers announced in a bid to inject some life into the realty market-- which has remained sluggish for more than two years now -- has finally started to pay off.


Developers said they have managed to pull relatively greater number of buyers over the last two months. Officials at the five land revenue offices (LROs) in Kathmandu Valley also said their offices, which previously wore a deserted look, have started to see some bustle again.


Department of Land Reform and Management (DoLRM) officials said LROs in the Valley are registering an average of 75 fresh deals every day since late July, when the new fiscal year started.


This is a significant rise compared to the daily figures for 2011 and the first six months of 2012.


Export of readymade garments to India drops


An unexpected decrease in the export of Nepali readymade garments has shattered the expectations of Nepali exporters of making India its next prime export destination.


According to garment exporters, due to non-tariff harassment, garment exporters are using illegal channels to export their products to India, due to which real figures may be missing from the available original export data.


“We are quite surprised with the changes in the export figures to India,” said president of Garment Association – Nepal Uday Raj Pandey, adding that the demand for Nepali readymade garments is good in India.


“We had high expectations regarding garment exports to the Indian market but the reason behind the drop is yet to be identified,” he said.


According to Pandey, India was identified as ‘destination next’ for garments and the association was expecting an overall export figure of around Rs 800 million to Rs 900 million in the fiscal year 2011-12.


However, annual export figures of Trade and Export Promotion Centre state that in the fiscal year 2011-12, garment worth only Rs 332 million was exported to India.


Don't manipulate balance sheets: Governor to lenders 


Nepal Rastra Bank Governor Dr Yuba Raj Khatiwada has called on bankers not to manipulate figures on balance sheets for short term gains, as it could ultimately deepen problems and pose a question mark on their credibility and reputation, which may later be hard to fix.


His call comes at a time when increasing number of lenders are known to be tweaking loan classification figures to keep the level of substandard, doubtful and bad loans low.  “This (unhealthy practice) may one day culminate into credibility and reputational risk, which may lead to the fall of institutions,” Khatiwada told National Risk Management Seminar organized by the National Banking Training Institute in Kathmandu on Monday.


He also reminded that though “the central bank has measures to mitigate other forms of risks, it does not have mechanisms to manage such (credibility and reputational) threats.” The outspoken governor, who is known to make bold remarks, however, indicated he was not discouraging banks and financial institutions to take risks.


“There is a relationship between risks and returns and without taking certain risk, no institution can maximize returns,” he said. “But every institution must know its appetite for risk. And if they go (overboard), they´ll fall.”

“So, risk management should be at the forefront of decision making process at banks and financial institutions. The institutions should also follow risk management guideline of the regulator and other macro-prudential measures,” Khatiwada said.


One way banks and financial institutions can detect risks posed by different parts of operations, according to the governor, is by conducting stress tests periodically. “This provides a scenario of their ability to absorb shocks. They should then fine tune their portfolio based on the results,” Governor Khatiwada said.


'Domestic airliners lack confidence to invest more'


Lack of confidence among the private airline operators to take risk and construct own hanger has added to insecurity in the air transportation, according to the airlines operators.


“There is a lack of confidence among the operators to invest more to maintain quality and safety of aircrafts,” said deputy director of Buddha Air Mangesh Thapa.


“We have to maintain quality and safety for a long term business plan,” he said, adding that one needs to make a huge investment to construct an international standard hangar. “It has a lot of risk factor too.”


Bank loans to farm sector jump 65pc

Commercial banks have been responding heartily to Nepal Rastra Bank’s ( NRB ) call to increase lending to the agriculture sector. Loans to the farm sector jumped 64.9 percent in fiscal 2011-12 compared to the previous year.


According to the central bank’s statistics, lending increased to Rs 23.4 billion in 2011-12 from Rs 14.19 billion in 2010-11. Credit went to farming service, tea, animal farming, forestry, fishery and other agricultural activities and services.


The current fiscal year’s monetary policy has directed commercial banks to increase their lending to the agriculture and energy sectors to 10 percent of their total lending. They are required to reach this figure by mid-July 2014, according to the NRB directive.


Central bank officials are elated by the change in lending trends. “Before the directive was issued, lending to agriculture and agriculture based industries accounted for less than 3 percent of the total lending portfolio,” said Min Bahadur Shrestha, executive director at NRB . “Currently, the lending is well above 4 percent.” He added that the increase may not be large considering the small base of agro lending, but it is a significant rise. More encouraging has been the changed approach of banks towards financing agro-based businesses. Everest Bank has even opened a separate branch to concentrate on such lending. It recently launched a branch in Rajbiraj named Krishi Udhyam Bikas Sakha with a special mandate to concentrate on lending to the farm sector.


Governor of Nepal Rastra Bank Yubaraj Khatiwada said on Friday that risks in investment in agriculture should be addressed through insurance in a bid to assuage bank jitters over its vulnerability to natural hazards.


Poultry business to grow by Rs 9.7b this year 

 With rise in production of poultry products, except commercial broilers and broiler chicks, Nepal´s poultry industry is set to witness its total turnover grow by around Rs 9.7 billion in the current fiscal year compared to last year´s figure, shows an estimate unveiled by the poultry entrepreneurs.


Experts involved in the study said rising demands and prices of poultry products and poultry ingredients are the major causes behind such a sharp expansion of turnover of the industry.


Dr Til Chandra Bhattarai, a poultry researcher, who also headed the recent study, said despite adverse condition in poultry production, overall poultry sector is going to register around Rs 59.69 billion worth of turnover over the current fiscal year 2012/13, up from around Rs 50 billion earlier year.


Traders reduce import of Chinese goods by 35 percent for Dashain 

Traders have reduced imports of Chinese goods targeting upcoming festivals by at least 35 percent compared to last year´s volume fearing rising price of those goods on the back of stronger Chinese currency and US dollar against Nepali rupees.


Besides rise in transportation cost, upward revision of customs valuation has also made Chinese goods more expensive in Nepali market.


Over the year, value of the greenback has reached to Rs 85, up from Rs 72. Similarly value of Chinese Yuan too strengthened to Rs 14 from Rs 11 last year.


“Worse still, transportation fare for ferrying goods along Kathmandu-Khasa route has raisen to Rs 90,000 this year from Rs 70,000 per container last year which has also pushed up the price of Chinese goods in our markets,” said Sunil Timilsina an importer, who runs a wholesale shop at Wotu.


Trade and Export Promotion Center, an authorized agency to keep trade data, states Nepal imported Chinese goods worth Rs 52.92 billion and exported goods valued at Rs 985.69 million during the fiscal year 2011/12.

Kumari Bank initiates merger talks with Siddhartha 


Kumari Bank has initiated merger talks with Siddhartha Bank as it aims to create a viable category ´A´ financial institution that ranks among the largest in terms of capital and has the capacity to absorb greater shocks.


The merger deal, if completed, would be the second among commercial banks after the consolidation of NIC Bank and Bank of Asia Nepal which has reached final stage.


“Yes, we have seriously entered into merger talks with Siddhartha Bank,” a very reliable source of Kumari Bank told Republica. “The deal is being negotiated by a four-member merger committee headed by Rishi Agarwal (a board director of Kumari Bank).”


Surender Bhandari, CEO of Siddhartha Bank, also confirmed that preliminary talks on consolidation were being held with Kumari Bank. “But it´s still premature,” Bhandari told Republica. “In fact, we are holding talks with couple of other banks as well in this regard.”


Insurance Board's directive dragged to court 


The Insurance Board´s decision to cleanse the insurance sector has once again faced a hurdle, as another public interest litigation has been filed at the Supreme Court challenging the decision of the insurance sector regulator to introduce a directive on corporate governance.


The first hearing on the case was held on Thursday, an advocate told Republica on condition of anonymity. A division bench of justices Girish Chandra Lal, Baidya Nath Upadhyaya and Bharat Bahadur Karki is hearing the case.


"The lawsuit only says the latest directive will inflict huge losses on insurance business and should be annulled immediately," the source said. "The lawsuit also claims the directive goes against the prevalent laws."


This is the second time a lawsuit has been filed challenging the corporate governance directive issued by the Insurance Board.  Previously, the Supreme Court had refused to issue a stay order against the regulator´s decision to introduce the directive.


The directive on corporate governance has created uproar in the insurance sector as it puts a cap on remuneration of chief executives, bars insurance companies from generating business from promoters and prevents more than one member of a family from assuming the post of board director in the same company.


  EXIM Bank positive about construction of Pokhara Airport 


China based EXIM (Export-Import) Bank has asked the Nepal government to speed up the process to select the bidder for the construction of proposed Pokhara Regional International Airport (PRIA) amid delay to implement the much touted project over the controversy on project cost.


A Nepali delegation that visited China recently in a bid to resolve the problems, briefed Tourism Ministry and Finance Ministries about the outcome of visit stating that the Chinese officials were positive to construct the airport irrespective of the high cost of the project.


The works on the project was halted after the lowest bidder quoted more than 85 percent higher than the government´s earlier estimation. China CAMC, the lowest bidder had quoted US $ 305 million for PRIA against the government estimation of US $ 165 million.


The delegation led by Yagya Gautam, Tourism Secretary, had left for the northern neighbor to resolve the issue of high cost and procedural complexities on the implementation of the project. The delegation had, among other high ranking Chinese officials, met one of the vice-presidents of EXIM Bank during the visit.


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