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Lending is still heavily based on fixed assets collateral: NRB



NRB
Nepal Rastra Bank (file photo)

Kathmandu, June 19:  Nepal Rastra Bank, the central bank of Nepal, has said that loans based on the collateral of fixed assets stands at 88% of total loans, depicting the heavy concentration of collateralized lending.

A report “Financial Stability Report” for Fiscal Year 2022/23, the NRB has further stated that this makes it difficult for the low-income/ poor population and small and medium businesses to
obtain credit from formal financial institutions. Moreover, the usage of personal credit rating or scoring to facilitate non-collateralized credit facility is still in its infancy in Nepal.

The existing credit guarantee schemes as well as the existing framework for the use of movable assets, the secured transaction registry, require further strengthening. Further, the subsequent interest rate hikes and frequent volatility have also dampened the usage of formal credit.

NRB has taken actions against BFIs on frequent increase in interest premium charges against NRB regulation, the report says.

Likewise, deposit is skewed towards fixed Deposit. Fixed deposit constituted 58% of total deposits. The number of deposit accounts with BFIs reached 44.9 million, which is more than the total population of the country and signals multiple accounts of the same person in different BFIs.

NRB forbids commercial banks from accepting short-term fixed deposits for a term below three months to promote long-term savings while it has also stipulated that the difference in interest rates across savings accounts must not be higher than 2 percent.

While these measures have helped to ensure longer-term savings, they may have also affected the flexibility of BFIs and may not be attractive for low-income savers, NRB said.

Financial Inclusion and Consumer Protection

The NRB Act, 2002 has entrusted NRB to increase access to financial services and increase public confidence toward the financial system.

NRB policy measures such as the requirement of establishing a branch of commercial banks in every local body, deprived sector lending requirement, specified sectoral lending requirements, special refinance facility to the cottage and small industries, directives on consumer protection, policy on financial literacy has helped to increase the level of financial access and financial inclusion in the country.

The NRB Unified Directives to BFIs18 has 21 broad headings and related annexes that cover comprehensive regulations on governance, interest rate, and consumer protection among others. Recently, NRB has established a dedicated Financial Inclusion and Consumer Protection Division to enhance access and ensure consumer protection in Nepal. #nepal #NRB


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