Investments of BFIs Becoming Riskier

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Investments of BFIs Becoming Riskier

September 13: The lockdown and prohibitory order enforced by the government in the country to control the spread of coronavirus has become an impediment in loan collection of banks, which has put their investments at risk. Even though the loan collection was satisfactory until the month of Ashad (mid-June to mid-July) in the last fiscal year, investments have become riskier with the reduction in the loan collection since then. Bankers expressed that they have had to face the double problem of not having any alternative investment options and the subsequent increase in their liquidity.

Bankers said that all of the banks in Chitwan have no new investment as well as no new loans. Ishwori Nepane, the manager of Rastriya Banijya Bank, Bharatpur branch, said that the lack of new investments and loan collections has increased their risks. “While the old loans have stopped being collected, there have been no new investments either,” he said, adding, “The depositors need to keep being paid their interest instead.”

He said that while the interest payments and service renewals were satisfactory until the end of Ashad, they have completely stopped now. He believes that this situation has arose because people have started to prioritize their health and daily living over new investments and payment of loans because of COVID-19.

“Even though the investments in new industries, infrastructures and constructions had stopped, there used to be some investments in the agricultural sector. However, after the month of Shrawan (mid-July to mid-August), even this sector has been declining,” said Dinesh Babu Nepal, the manager of Agriculture Development Bank, Hakimchowk branch. “Even though new entrepreneurs had shown interest to invest in the agricultural sector during the first week after the lockdown was lifted, the process has now come to a standstill.”

According to him, the debtors paying for old loans are very low now. There are even less new investors. “Investment in the agricultural sector has been affected as many agricultural products had previously been wasted because of the lack of proper market value,” he said.

Many bankers claimed that even their regular customers aren’t interested in getting new loans. “Every sector has been affected. We are dependent on the finance sector,” said Dinesh Gautam, the brank head of Sanima Bank, Narayangarh, “However, the situation isn’t bad enough for us to be scared.” He said that if the effects of COVID-19 prevail for a long time, the finance sector will shut down, which may lead to situations like late repayment of loans and in some cases, bad debts.

The effects have not been that bad even with the lack of loan collection and increase in liquidity in banks. Financial institutions will need a few years to come back to their old condition even after the situation start getting back to normal.

 Kapil Dev Subedi of Chitwan, who is currently getting his doctorate on ‘Corporate Investment and Financing’ explained that the effects of the current situation may not be visible at the moment but it will start to appear gradually in the future. “Higher the confusion amongst the investors and the debtors, higher the risk for the banks,” he said.

He said that sectors like tourism, automobile and real estate have become riskier, which then makes the investments in this area more at risk. “The banks that have diversified their investments have less risks,” he said, adding, “Banks that have invested more in one sector are facing higher risks.” He suggested that more investments should be made in sectors that have the potential to get debt relief and to attract refinancing investments.

According to him, risks can be reduced if investments are increased for the hydropower, agricultural and pharmaceutical sectors.

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