Dealers upset after banks crack down on auto loans

Nepalese car dealers are unhappy that banks have restricted car loans just as sales began to recover from the two-year-long Covid-19 disaster.

Bankers say the country is in the midst of a liquidity crunch and money is hard to come by for autos or any type of credit.

Dhurba Thapa, chairman of the Automobile Dealers Association of Nepal, said banks and financial institutions had started reducing their exposure to auto loans from last October. “Now they have almost completely stopped lending money to buy cars.”

Thapa said almost everyone borrows from their bank to buy cars. “Nearly 90% of car buyers take out car loans while the figure for two-wheeler buyers is 60%.

According to Thapa, auto sales fell 30% after the credit crunch. “We were hoping for a recovery in sales, but the current situation does not bode well.”

Most of the banks the Post spoke to said they hadn’t stopped auto lending entirely, but had other priority sectors to serve.

“Apart from six to seven banks whose credit-to-deposit ratio is below 90 percent, the rest are unable to issue car loans,” said Anil Kumar Upadhyay, chairman of the Nepal Bankers Association.

“Banks normally restrict lending when their credit-to-deposit ratio exceeds 90%,” he said.

“Only six banks have money to make investments. And even among them, two are approaching the credit-to-deposit ratio of 90%,” said Upadhyay, CEO of the Agricultural Development Bank.

“Additionally, the government has discouraged investment in imported goods, and motor cars are one of them,” Upadhyay said.

In the first seven months of the 2021-22 financial year ending mid-February, imports of goods soared by 42.8% to reach 1,147.46 billion rupees, against an increase of 0.01% it a year ago, according to the Nepal Rastra Bank.

Imports of petroleum products, medicines, crude palm oil, crude soybean oil, transport equipment, vehicles and parts have swelled.

The central bank said the current account, which measures the country’s income and expenditure abroad, posted a deficit of 413.86 billion rupees during the reporting period, compared to a deficit of 104.39 billion rupees. rupees during the same period of the previous year.

Gunakar Bhatta, spokesman for Nepal Rastra Bank, said banks were under immense pressure due to a shortage of liquidity and therefore were unable to lend to the automotive sector. “They don’t invest in other sectors either.”

Banks can provide loans after studying their portfolio and available cash, but observing the current situation, it is not easy for them to invest in the auto sector, Bhatta said. “We have not issued any circulars to stop car loans.”

In November 2018, the government had revised the loan-to-value ratio for car loans for private vehicles to 50% from 65%. With this provision, customers had to pay a deposit of 50% of the value of the vehicle, which was 35% earlier.

“The past provision continues to hurt the automotive sector. Now the government has imposed several measures to curb imports, and this has particularly affected the automotive sector,” Thapa said.

Last December, Nepal Rastra Bank unveiled another new policy requiring importers to maintain a 100% margin amount to open a Letter of Credit (LC) to import 10 types of listed goods.

Importers of motorcycles, scooters and diesel-powered private automobiles must maintain a 50% margin. The central bank has decided to discourage the import of these goods considering that they are “non-essential”.

Motorbike and scooter buyers are paying the cost of government rules as prices have risen sharply, car dealers say.

“The central bank directive has more than halved auto imports because traders are unable to open LC following the new margin provision,” Thapa said.

With things as they are, car dealers don’t see much reason to get excited about Nepali New Year sales, the second busiest holiday shopping season after the Dashain and Tihar festivals.

Thapa said the liquidity crunch would ease after elections scheduled for mid-May as the market could be flooded with cash along with all the campaign spending.

According to the Trade and Export Promotion Center, vehicle imports jumped 29.9 percent to Rs 69.15 billion in the first seven months of the current fiscal year.

Traders say the higher value of imports is a result of cars becoming more expensive and does not reflect an increase in volume.