Bankers ask NRB to allow forex loans for projects

KATHMANDU, MAR 09 -

Bankers have asked Nepal Rastra Bank (NRB) to allow them to finance projects in foreign exchange citing increased costs of financing in Nepali currency due to rising interest rates over the last two years.

Nabil Bank and Citizens Bank International have approached the central bank asking it to allow financing in foreign currency which they said would help entrepreneurs to get finance at a lower rate of interest.

Currently, banks and financial institutions (BFIs) cannot issue loans in foreign exchange to major projects. The central bank, however, allows financing of power projects of up to 1,000 KW in foreign exchange, especially to import equipment.

“We want to better utilize our foreign exchange reserves for infrastructure development here instead of depositing it in foreign banks that offer a maximum interest of 3 percent,” said Amrit Charan Shrestha, chief executive officer of Nabil Bank.

“As lending in Nepali currency has become costlier due increased cost of funds amid a liquidity crunch, financing in foreign currency is a good option for entrepreneurs to get loans at a lower interest rate.” Banks are offering an annual interest of up to 12 percent on fixed deposits. The interest rate on savings deposits has also gone up resulting in higher lending rates.

During the first six months of the current fiscal year, deposits grew by a mere Rs 3.78 billion compared to the same period last year in a reflection of the inability of banks to attract deposits.

Shrestha said that Nabil currently held foreign exchange reserves worth Rs 8 billion. Nabil is seeking to invest the foreign currency in the hydropower sector.

“We are discussing financing a 42 MW hydropower project and several other small hydro projects,” added Shrestha.

Bankers have also seen opportunities of getting finance from foreign banks that would allow Nepali banks to issue credit to projects here.

“If foreign banks provide funds to us at a low rate of interest, why not allow Nepali banks to invest here in foreign exchange?” asked Rajan Singh Bhandari, chief executive officer of Citizens Bank International. “The only risk we have to face is fluctuations in the exchange rate.” Bankers however don’t see fluctuations in the exchange rate as a major threat. “We can easily overcome fluctuations in the exchange rate,” said Shrestha of Nabil.

However, bankers are yet to discuss such a possibility at the Nepal Bankers Association.

A senior NRB official said that the central bank has told the concerned banks to submit a detailed analysis of how financing projects in foreign exchange would benefit the country and the banking sector.

Posted on: 2011-03-09 08:52
PRITHVI MAN SHRESTHA, http://www.ekantipur.com/2011/03/09/business/bankers-ask-nrb-to-allow-forex-loans-for-projects/330647.html