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banking sector in Nepal

Banking Sector Nepal

Know the Opportunities for Banking Sector in Nepal

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19th December 2020, Kathmandu

The banking sector in Nepal has shown major progress. With the passing time, all the financial institutions are evolving and growing all over Nepal. The banks are trying to reach the people with their facilities and services not just in urban areas but even in rural areas.

Now, we can see many opportunities for the banking sector in Nepal. In the past, many opportunities were missed due to political instability and many other reasons. Now as the things are getting into place, more opportunities are developing for the banking sector.

 Here, we will discuss some of the opportunities for the banking sector in Nepal. Now, let’s get started.

Opportunities for Banking Sector in Nepal

Increasing investment potential

Political parties have also made economic development, prosperity, or economy the main agenda.

Economic development requires investment and a conducive environment for investment. One is the institutes that invest in the country and the other is the financial institutions. If the investment climate is to be ensured and economic prosperity is truly desired, there is ample potential for investment in Nepal.

As the capital market has not developed well in Nepal, the banking sector is the main basis of the country’s development. If the demand increases and the investment area of banks and financial institutions also increases, there are ample possibilities. If the government manages to mobilize the private sector while maintaining political stability, the time has come for opportunities for the banking sector to grow.

Rural banking

The government is promoting the rural banking concept all over the country. The banks and financial institutions are encouraged to establish their branches in the rural areas too.

With the vision to provide banking facilities and services to the people of rural areas of Nepal, this concept has been brought into action. Still, the majority of the people in rural areas do not have a bank account and are deprived of banking facilities. The banks in rural areas help people to save their money and mobilize them in an effective way.

Technology

In the past few years, the banks in Nepal have shown drastic technological development. Technology has become the backbone of every department in the bank. They have come up with facilities like e-banking, mobile banking, mobile apps, etc. to help their clients in every possible way.

Robust demand

The number of working of the population has increased rapidly and it’s still in the growing form. This increase in the working population increases disposable income. To invest their money, or to safely deposit, the customers have increased their interest in banking products. This shows the emerging opportunities of banking sectors in Nepal.

Banking Sector in Nepal

Current Situation Of The Banking Sector in Nepal 2020

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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.

Conclusion

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.