Laxmi Capital News
Banks less likely to get foreign currency loans anytime soon

So far, only International Finance Corporation (IFC), amember of the World Bank Group, has shown interest to disburse loans to somecommercial banks. NIC Asia Bank Ltd and NMB Bank Ltd have signed loan mandatewith the IFC, initializing the process to get funds from the World Bank Group’sinvestment arm. Other commercial banks are also approaching the IFC for suchloans. However, bankers do not seem to be optimistic about the possibility ofgetting foreign currency loans from other international institutions anytimesoon.

 “We are unlikely to get foreign currency loans frominternational institutions immediately.  They first carry out riskanalysis of the country and then the prospective borrowing institution beforeassessing our repayment capacity,” said BhuvanDahal, CEO of Sanima Bank Ltd.“It would take some years before banks receive foreign currency loans frominternational institutions except for those like IFC who have been working inNepal and are interested to invest here,” he added.

The NRB brought a new rule last month, allowingcommercial banks to borrow in foreign currency as part of its efforts toaddress ‘credit crunch’. NRB was hopeful that the shortage of lendable fundwill ease to some extent by allowing banks, who have been facing huge mismatchin growth of deposits and loans, to take foreign currency loans.

The facility was also intended to ensure that prioritysectors do not face shortage of financial resources. 

Many banks, which were earlier upbeat about the newfacility from the central bank, are not showing much interest to get such loansdue to conditions set by the central bank in terms of investment areas andinterest rates. 

The central bank has set the criteria of investment offunds that banks borrow from foreign institutions. 

According to a directive issued by the NRB, a bank can borrowup to 25 percent of its core capital in foreign currency to provide loans toprojects like hydro power generation and transmission lines, roads, tunnel,airport, cable car, bridge and physical infrastructure (except housing, landplotting and real estate), and tourism where there is return on foreigncurrency, as well as agriculture and micro-finance areas.   

Interest rate of such foreign currency borrowing shouldnot exceed 6 Month Libor (London interbank offered rate) plus 3 percent thatincludes all applicable fees. Also, banks are not allowed to provide any fee orcommission while borrowing funds from foreign institutions. 

Source : My Republica, 9th May 2018

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