15th December 2020, Kathmandu
Nepal’s financial sector has been severely hit by the global pandemic, Covid-19. According to the Ministry of Finance, the financial sector contributed about 6.3 percent to Nepal’s GDP (Gross Domestic Product) in the last fiscal year.
Nepal’s financial system is controlled by the banking sector, insurance, securities market, and other service sectors. All these sectors have suffered heavily with unemployment and business closures due to the pandemic.
Till mid-July 2020, Nepal Rastra Bank has licensed a total of 171 financial institutions. These total institutions include 27 commercial banks, 22 development banks, 22 finance companies, 85 micro-finance institutions, 1 infrastructure development bank, and 14 other institutions.
Banking Sector in Nepal in 2020
We all know that the financial service sectors play a vital role in the economic and sustainable development of the nation. But due to the outbreak of Coronavirus (Covid-19), most of the banks and financial institutions are in critical condition. Most of them have gone into loss while a few others have done very less profit compared to last year.
Nepal Rastra Bank has asked all the commercial banks to keep the spread rate at a maximum of 4.5 percent by the end of the current fiscal year.
The nation-wide lockdown due to covid-19 resulted in the financial struggle of the banking sector. Not just this, the lockdown increased the unemployment rate, people lost their source of income, many businesses closed, and also the company lost their source of income with this.
In recent weeks, cash withdrawal has been increased from the banking sector immensely. The government has been providing relief for people but, the lack of homework done to maintain economic sustainability by the government has added financial pressure on the banking sector of Nepal.
The financial institutions earn interest by providing loans which is their leading source of income. But due to the pandemic, they have not been able to disburse loans which has led to a major decline in their income.
The economic loss followed by the fall in demand has led to a negative economic growth rate this year. There are very few consumers buying goods and services available in the market compared to previous years due to lack of income.
Do you know that during the five-month-long nationwide lockdown, 70% of factories were shut down completely? Due to which thousands of people became unemployed.
All the banking sectors have suffered losses or, low-profit margins. Every banks’ credit rating profile has declined because of the covid-19 effect.
Although all these difficulties, the banks are currently focusing on continuing their services. The profit margins of banks are shrinking continuously.
This year, all the banks earned a total profit of Rs. 54.30 billion which is 12 percent lower than last year. The total profit was Rs. 61.84 billion last year. The clients were unable to pay interest to the banks due to the pandemic. Because of being unable to collect their interests, the banks suffered a decline in profit.
As the effect of the pandemic is still going on, all the financial institutions should focus on planning and expanding their potential areas. The management should develop a covid-19 strategy. Many businesses have been collapsed so the banking sectors of Nepal need to innovate the services to help their clients rebuild their business.