With the increase in construction of physical structures, especially after the devastating earthquake of 2015, flow of credit in the construction sector from financial institutions is on the rise.

As per the statistics of Nepal Rastra Bank (NRB), domestic banks and financial institutions (BFIs) have disbursed credit worth Rs 214.9 billion in the construction sector in the first nine months of fiscal 2016-17 — an increment of 17.5 per cent as compared to the same period of the previous year. The outstanding credit of BFIs in construction sector in the first nine months of 2015-16 was Rs 182.8 billion.

NRB data shows that a majority of credit disbursement of BFIs in the construction sector is on heavy construction projects like bridges and roads. The central bank’s data shows that credit disbursement in such heavy construction projects has increased by 26.7 per cent to Rs 24.85 billion in the first nine months of the ongoing fiscal year compared to Rs 19.6 billion during the corresponding period of the previous year.

Similarly, BFIs’ credit disbursement in residential construction and non-residential construction has also increased by 17.3 per cent and 7.2 per cent, respectively, in the first nine months of 2016-17.

Credit flow in residential construction in the first nine months of 2016-17 stood at Rs 175 billion against Rs 149.5 billion disbursed in residential construction during the same period last year. Similarly, BFIs extended credit worth Rs 14.8 billion in non-residential construction between mid-July and mid-April this fiscal year against Rs 13.8 billion disbursed for non-residential construction during same period of last fiscal.

The zero per cent interest refinancing facility to BFIs is also seen to have encouraged BFIs to flow credit in the construction sector. NRB data also shows that BFIs have extended Rs 612.3 million housing loan to earthquake victims at a concessional interest rate of two per cent until mid-April this year.

Bankers have said that the demand for credit in the construction sector is on the rise these days along with the pace of construction works of bigger projects picking up and reconstruction of physical structures taking place in the country.

“The demand of outstanding credit in construction sector is increasing and we have been disbursing credit in the sector accordingly,” said Anil Gyawali, chief executive officer of Global IME Bank.

Similarly, NRB data shows that credit to agriculture and industrial production sectors increased by 9.3 per cent and 11.6 per cent, respectively, in the review period. The outstanding credit of BFIs in retail trade sector and service industry sectors also increased by 13.5 per cent and 16.3 percent, respectively.

source:the himalayan times,18 may 2017