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Kathmandu Friday February 15, 2002 Falgun 03, 2058.
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Finance companies facing
survival threat
Post Report
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.
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