Finance companies facing survival threat

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KATHMANDU, Feb 14: Promoters of finance companies and top officials of the Nepal Rastra Bank (NRB) speculated that the financial condition of fifty finance companies are in a precarious situation and the ongoing economic downturn will test their sustainability.

With the economy catching up the recessionary trend, the performance of the finance companies too recorded slump during the first two quarters of the current fiscal year.

The trend of growth of the finance companies that had caught during the last five years has turned downhill during the six-month period. The declined business activities, lack of investment opportunities and very low rate of loan recovery has affected the business of the finance companies.

The gloomy consumption environment and shrinking consumer behaviour, the major determinant of finance companies’ business, has resulted in less than expected performances of finance companies, according to Ganesh Bahadur Shrestha, Executive Director, Non-Banking Regulation Department of the NRB.

And considering the demand and scope of investment and actual lending made during the period, the promoters of the finance companies are not much hopeful of good performance even in the remaining half of the current fiscal year.

"It is the remaining half of the fiscal year in which the severe impact of the downturn in the first half will begin to show," said Ajay Ghimire, Chief Executive Officer (CEO) of Ace Finance Company. He speculated that the profit of the finance companies will record a sharp downfall.

According to the quarterly report on the finance companies issued by the central bank, the lending of the finance companies during the first quarter was Rs 710 million. However, the same further went down to Rs 114 million during the second quarter.

This is a decline by about 84 percent in comparison to the lending figures recorded in the previous quarter during the current fiscal year.

The initial days of the third quarter is still tougher, as the finance companies are finding it hard to attract investors, according to Gambhir Man Bajracharya, President of the Finance Companies Association of Nepal, and he expressed pessimism over a possible recovery given the prevailing business scenario.

Total loans and advances of the finance companies is recorded at Rs 11.69 billion as of second quarter of the current fiscal year while the same was Rs 10.86 billion at the end of the last fiscal year. Meanwhile their investment during the period stood at Rs 80 million.

Bajracharya lamented that the shattered business environment has affected the recovery rate of loans as well. "This has affected the profit, which in turn will damage the portfolio and the depositors’ psychology," he said.

Furthermore, finance companies are hesitant to mobilise deposits in the absence of investment demand, said Rabi Chandra Man Pradhan, President of Nepal Finance and Saving Company.

The deposits mobilised by the finance companies, during the first quarter, was Rs 700 million. The figure slid to Rs 80 million during the second quarter, which is a decline by over 88 percent.

"Even as the depositors preferred to hold the cash owing to the eroding depositors confidence, finance companies are not welcoming it as well," Pradhan added.

As the result the growth trend of the finance companies has ceased to continue and caught the reverse gear. The sliding performance of the finance companies will add to the eroding confidence already visible among the depositors and investors and will hamper the credibility of the sector as a whole, entrepreneurs lamented.

The impact of the declined performance of the finance companies is already visible in the response it has been receiving in the secondary market during the period. The secondary market investors refrained from investing in finance companies during the period.

"Leave alone the valued investors, even the speculative investors are preferring to stay off line and this is just the initial response," said Ghimire.

He viewed that the promoters of the finance companies are better off not expecting the profit in the current fiscal year. "In fact, survival alone will be a great achievement for the finance companies through the current fiscal year," he stressed.

Makwanpur district exports plunge by over 46 per cent

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HETAUDA, Feb 14: The export of the commodities manufactured in the Makwanpur district have plunged by over 46 per cent in the first half of the current fiscal year owing to industrial insecurity, confusion shrouding the Nepal-India Trade Treaty renewal and the ongoing State of Emergency in the nation.

According to a report of the Makawanpur Chamber of Commerce and Industry (MCCI), the export of the commodities manufactured in the district was Rs 602.6 million during the first half of this fiscal year. It was over Rs 1.13 billion during the same period last year.

Of the total exports during the period last year, Colgate Palmolive (Nepal) Pvt Ltd and Nepal Lever Ltd emerged as the largest exporters from the district. The export of these companies had valued at Rs 637.6 million and Rs 445.1 million respectively.

Exports of these companies, however, slid by over 34 and 66 per cent respectively during the first half of the current fiscal year. It was put at Rs 418.3 million and Rs 148.5 million respectively, according to the report.

The report states that new provisions on the imposition of countervailing duty (CVD) on Nepali goods in India since March last year and the imposition of various state-duties has affected the price competitiveness of the Nepali commodities.

"In addition, internal factors such as the lack of industrial security and the recent declaration of a State of Emergency, among others, adversely affected the exports," said Keshav Shrestha, President of the MCCI.

Closure of Colgate Palmolive for 18 days owing to security reasons, among others, is one of the main reasons for a sharp decline in the export from the district, he added. Colgate Palmolive alone make up to 63 percent of the total exports from the district.

"Although the security situation has improved lately, the confusion reining over the renewal of the Nepal-India bilateral trade treaty and imposition of additional duties on Nepali exports by Indian state governments has dampened export prospects from the district," said Hitel Bishet, President of Hetauda Industrial Estate Industries’ Association.

Importance of ‘Global Compact’ highlighted

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KATHMANDU, Feb 14: Rabi Bhakta Shrestha, President of Federation of Nepalese Chambers of Commerce and Industry, has said that the feeling of insecurity has adversely affected the national economy and the private sector is taking the most of it.

Addressing a three-day workshop on Employers’ Organisation in South Asia on Promotion of Principals Contained in Global Compact, president Shrestha said that security and freedom may look elusive for a short period of time. However, in the long run, it matters, he said.

Highlighting the importance of Global Compact (GC), he said that it helps to bridge the gap between economic issues and social concerns by arousing the social responsibility of business firms.

"The business firms of the developing countries have more responsibility towards the society than the ones in the developed country as the multinational companies have a freedom to switch their plants if they dislike the business environment," he said.

Speaking on the same occasion, Suraj Vaidya, Chairman of the Employers’ Council of the FNCCI, said that with the onset of globalisation and liberalisation, business operation have become much more competitive. "The changing global economic and social structure will impact the labour relations, social issues and corporate responsibilities," he said.

Highlighting on the global compact principles, he said that it is intended to reorient the world corporate bodies and enterprises to involve it positively contributing to entire humanity. "Labour standard related principles are important to bring into practice as they need to be informed well and supported to understand the GC principles," he stressed.

However, he said that promoting the principles in poor countries like ours is a challenge since most of the business corporations in these countries are small and medium.

Toshio Suzuki, Managing Director of Nikkeiren International Corporation Centre (NICC), expressed his delight over the commitments of the Nepali entrepreneurs in adopting GC principles and assured continued support for the employers’ association of South Asia. However, he said that promoting the GC principles more effectively is a challenge.

He further said that effective implementation of the government policies is very much important to cope up with the challenges posed by the globalisation and stressed on the need of making the employers’ organisation strong to withstand the changing world scenario.