News Roundup: Liquidity Crisis Redux

Roundup of Nepali Economic and Business News for Jan 25-27
By NepaliEconomy.com

Liquidity crunch in the banking system has re-emerged with the rise in inter-bank lending rates to 12 percent. Nepal Rastra Bank (NRB) concurs with NepaliEconomy's view that the problem is due to mismatch in deposits growth and investment rather than insolvency of banks (the definition of liquidity crisis). According to acting Director General of NRB, Maha Prasad Adhikari, banks raised Rs 40 billion deposits but invested a whopping Rs 75 billion in the first four months of the fiscal year 2009-10. Just look at the balance sheet of Siddartha Bank. It posted pre-provisioning profit of Rs 243 million and had Rs 17.5 billion loan and Rs 16.6 billion deposits. And in the midst of this all, another development bank comes to life, this time in Maoists stronghold Pyuthan.

NRB is trying to tighten the regulation and wants to bring fledgling Cooperatives under its folds from the Department of Cooperatives. Cooperatives are an important segment of Nepal's financial landscape. They hold Rs 63 billion in deposits compared to about Rs 500 billion at commercial banks. Two bankers are charged by NRB for fraud and charge sheet seems quite long.

Load shedding is set to increase from 9 hours a day to 11 hours starting January 28th. NEA set 9 hours a day load shedding on January 17. Nepal is importing additional 30MW from India at Rs 10.72 (IRs 6.70) per unit.

Herbal manufacturing is growing at a brisk pace in Nepal. Currently, there are 35 companies - 14 registered in 2008/09 vs 3 in the prior year. Production of medicinal herb rose 11 percent to 94,660 kg in 2008/09 from the previous year. Nepal consumes about Rs 10 billion of medicine a year and 75 percent of that imported. The ailing state-owned drug company Nepal Aushadhi Ltd (NAL) is changing its overseer from Ministry of Industry to Ministry of Health.

Employees in local bodies have been striking since January 22 demanding among other things (a) enforcing automatic promotion (uh!) and (b) making all employees working till mid-July 2009 permanent. This is affecting normal business transaction like transfer of land ownerships and obtaining of citizenship cards.

A cautionary note from Venezuela. When extreme-left Chavez government took over the country and started expropriating properties from domestic and multi-national companies, money poured out of the country. According to its Central Bank, a whopping US$ 93 billion has left the country since 2005.