Loan payment in the automobile field has reached low by 85 percent in the first quarter

Loan payment in the automobile field has reached low by 85 percent in the first quarter

Loan payment in the automobile field has reached low by 85 percent in the first three months of the current financial year showing a slowdown in the domestic automobile market.

According to the statistics of Nepal Rastra Bank (NRB), banks and financial institutions distributed credit amounting to Rs 665 million in the first quarter of financial 2019-20 toward Rs 4.75 billion loans hovered in the sector in the same period of the previous financial year.

The government’s policy to restrict import of luxurious goods including vehicles, which is assigned to restrict the ballooning trade shortfall of the country, appears to have directly affected the automobile sector as both the flow of loans from BFIs and the demand for new vehicles among consumers has come down drastically in recent months, as per automobile dealers.

In September of previous year, the central bank in line with the government’s policy to restrict import of luxurious goods, had lowered the ratio of loan to value of vehicles purchased to 50 per cent from the existing 65 per cent which meant that automobile purchasers were made to compulsorily pay Rs 1.5 million down payment while purchasing a car whose value is Rs three million.

The central bank’s decision to compress financing facilities in the automobile sector was basically to regulate the growing import of vehicles, particularly luxury vehicles, in recent years.

The central bank’s decision to compress auto financing also intended to address the credit crunch scenario in the market by managing capital flight as a large chunk of money goes abroad while importing vehicles. Anjan Shrestha, former president of Nepal Automobile Dealers’ Association (NADA), said that the government’s policy to compress the import of automobiles has seriously affected the automobile business in the country.

Shrestha said that the decision to lower the ratio of loan to value of vehicles purchased has discouraged customers from purchasing new vehicles as customers will have to foot a huge chunk of money as a down payment to purchase a car. The automobile business this year is down more than 40 percent compared to the previous year.

Furthermore, BFIs are also unwilling to issue loans in the automobile sector as the government treats the sector as unproductive, as per automobile dealers.

Meanwhile, the overall credit payment of BFIs in various sectors has come down in the first quarter of the ongoing financial year. Though BFIs had floated Rs 174.6 billion credit in the first quarter in the financial year 2018-19, they have distributed only Rs 123.4 billion loans in the first quarter this financial year.

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