Banks credit flow drops 5%

KATHMANDU, March 31, 2012

The credit flow of commercial banks to various sectors dropped 5 percent in the first seven months of the current fiscal year, exposing the lingering problem of suppressed credit demand that has lately hit the banking sector.

Thirty-two commercial banks extended Rs 36.18 billion in loans in the seven-month period through mid-February, as against Rs 38.14 billion recorded in the same period last year, latest figures compiled by the Nepal Rastra Bank show.

The data shows that credit flow in the production sector, which absorbed over 35 percent of the total bank loans, fell by 21 percent to Rs 13.59 billion in the seven-month period from Rs 17.21 billion in the same period last fiscal year.

Loans extended to wholesalers and retailers also slumped to Rs 5.13 billion in the first seven months, as against Rs 10.9 billion in the same period last fiscal year.

The services sector was not any better in absorbing bank credit as loans extended to the sector dipped to Rs 2.78 billion in the review period from last fiscal year´s Rs 3.29 billion.

Among others, credit extended to import vehicle, aircraft and their parts also plunged by over 71 percent to Rs 394.4 million this year from Rs 1.39 billion recorded in the seven-month period last year.

Bankers attributed the cause to stagnancy seen in the real estate market and slump seen in the manufacturing sector that have started affecting various sectors of the economy as well.

However, not all sectors have seen shortfall in flow of credit this year.

Agriculture sector, for instance, attracted Rs 4.74 billion in loans in the first seven months of the current fiscal year. The sector had attracted credit of Rs 822.5 million in last fiscal year.

Although the central bank in January had directed banks to extend at least 10 percent of the total loan to agriculture and energy sectors, few bankers expressed surprise over the huge credit growth in a small period of time.

However, others like Rajan Singh Bhandari, whose Citizens Bank has introduced micro loans of up to Rs 500,000 for farmers and others related with agriculture sector, said there was huge demand for such loans.

“In a week, my bank was able to issue Rs 20 million worth of 500,000-rupee loans,” he said.

Likewise, loans to construction sector also went up by a whopping 141 percent to Rs 4.99 billion from Rs 2.07 billion last year. Similarly, loans to mining sector topped Rs 959.5 million this year, up 431 percent from last year´s Rs 180.4 million.

Source: Republica

National Hydropower cheating public shareholders

KATHMANDU, MAR 23, 2012

Public shareholders of National Hydropower Company have sought the regulator’s support to pressurise the company to hold its annual general meeting (AGM), since it has failed to hold an AGM for the last three years.

“The company has not held its annual meeting — which is mandatory — for the last three fiscal years which has left the public shareholders in the dark about its financial status,” said general secretary of Nepal Stock Investors’ Association Prakash Rajoria.

Investors have requested the capital market regulator — Securities Board of Nepal (Sebon) — to take action against the non-compliant company. “Different investors’ associations have lodged complaints against the company at Sebon,” he said, adding that Sebon has the authority to direct the company to hold its annual meeting, if it is delayed. “Moreover, the regulator can also hold the company’s annual meeting itself, if the executive board does not comply despite repeated orders, and audit the company’s balance sheet,” Rajoria added.

Some four hydropower companies are listed in the share market and the other three companies have been paying shareholders good returns, except for National Hydropower Company which has been mired in the majority promoters’ controversy.

The company’s stocks were being traded at as high as Rs 600 during the capital market peak around five years back but now share prices have plunged to around Rs 45.

“The promoter group — NB Group — that owned the majority stake then offloaded more than 50 per cent of its shares making a huge profit. But now the prospects of making money is low so they are shirking from even conducting the annual general meeting,” he said.

The company’s last AGM held in 2010 had announced a cash dividend of six per cent. “The company had set aside Rs 2 million to distribute dividends but it did not distribute it for no apparent reason,” pointed out Rajoria, who is also a public director of the company.

It is not a surprise that the board director of the company himself does not know the financial status of the company. “It is an example of the worst corporate governance and the regulator’s weakness has hurt shareholders,” he added.

National Hydropower Company promoted by NB Group has 13,863,462 unit shares listed at Nepal Stock Exchange with about 10 million units owned by minority shareholders. The group also owns majority stakes at other listed companies such as Nepal Bangladesh Bank, Nepal Credit and Commerce Bank, Harisiddhi Bricks and Tiles Factory and NB Insurance.

In May 2009, Sebon had suspended the trading of National Hydropower for suspicious distribution of unsubscribed rights shares but share trading had resumed later.

Recently, the share prices of National Hydropower had gone up due to rumours of its acquisition by Hydro Solutions but the acquisition was aborted due to the ‘suspicious activities’ of NB Group.

The capital market regulator has asked investors a few more days to figure out the steps that need to be taken. “We are discussing what can be done to protect the interests of investors and make the company compliant,” said an official at Sebon, that has the authority to punish the company.

Source: THT

Central bank mulls cap on personal loans, overdrafts

KATHMANDU, MAR 23 - 2012
Nepal Rastra Bank (NRB) has been mulling limiting credit under the personal loan and overdraft headings to Rs 10 million after finding that borrowers had been misusing a majority of such loans.

The central bank has recently sought the opinion of bankers in this regard. “Till now, we have no details on which sectors are receiving such credit and how it is being used,” said an official from NRB. “This will increase the credit risk tremendously.”

NRB officials claim they have found the credit issued under this heading being used for “window dressing”. Window dressing is a set of actions or manipulation where borrowers are provided additional funds to pay interest on their loans so that they don’t become substandard or non-performing. This action increases the profit of the banks and their balance sheet looks good in the short run but increases the risk in the long run.

Bankers agree that credit issued under such headings is being misused but are against putting a cap on it as suggested by NRB. They say that the central bank should monitor the lending done under such headings but should not impose a cap on it. “Most small and medium enterprises (SMEs) finance their business through credit issued under personal loans as their book-keeping and accounting do not have high standards,” said a banker. “Once the amount of personal loan is capped, they will find it difficult to finance their business.”

The central bank official, however, said that they would not impose a limit immediately. “Currently, we have only shown our concern, and are seeking the opinion of bankers so that we will be aware of the implications of the policy,” said the official. “We will issue a directive after winning the confidence of bankers.”      

Likewise, the central bank also plans to regulate banks and financial institutions (BFIs) during the procurement of fixed assets like land and buildings. NRB has asked bankers for their opinion about not allowing them to purchase fixed assets with a value exceeding their paid-up capital.

“The paid-up capital is capital owned by the shareholders and the rest of the money belongs to the depositors,” said an NRB official. “BFIs do not have a right to invest their money on land and buildings.” Bankers have agreed to this and said that NRB should bring directives to regulate it.

Source: Kantipur

CAAN eyes private partners for airport construction, upgrade

KATHMANDU, MAR 23, 2012

Civil Aviation Authority of Nepal (CAAN) has decided to construct new airports and upgrade some of the existing airports based on a public private partnership (PPP) model in the coming days.

Director general of CAAN Triratna Manandhar said that the maintenance of old airports and construction of new ones will be started under this concept. Manandhar shared that such a concept had been forwarded because the private sector had not felt any ownership of the airports and problems were also seen in the management of such airports.

He said CAAN was thinking about this partnership because private airline companies were reluctant to fly to airports in remote districts but were charging exorbitant fares and focusing on business instead of service.

CAAN has plans to make private airline companies –– that primarily focus on profit-making by running services only to relatively busy airports and not by providing service in remote districts –– disciplined and systematic.

Manandhar said this model will be implemented as an experiment to resume services to airports that have been closed down.

Ministry of Tourism and Civil Aviation is considering on operating the Mahendranagar Airport, Tikapur Airport of Kailali, Gokuleshwor Airport of Baitadi and Kamal Bazaar Airport of Achham. Similarly, it has forwarded tasks to construct an airport in Dharan of Sunsari.

CAAN is thinking on whether this model could be applied to operate the Balewa Airport of Baglung. It is planning to construct a new airport in northern Gorkha.

Source: THT

Share price correction affects banks returns

KATHMANDU, MAR 22, 2012

The banking sector that is the key player in the share market in terms of volume and returns till date, is correctly priced, if one goes by the average price-to-earnings ratio (PE ratio) of the listed banks, though they might not be able to pay returns as compared to a few years back.

The average PE ratio — that measures the price paid for a unit of share relative to the annual net income or profit earned by the company per unit — of the 25 listed banks stands at 17.60 times, which is the correct pricing. “It stood at 19.55 times in the second quarter of the last fiscal year.”

Similarly, a PE ratio under 10 means the stocks are under priced. “But the current average PE ratio of 17.60 times means that shares of banks are correctly priced but they may not be able to pay dividends as compared to a previous years as other indicators do not support it,” said share market analyst Rabindra Bhattarai.

Investors should buy stocks that have a high return on assets and low price-to-earnings (PE) ratio, he added. Return on assets (RoE) — that reveals how profitable a company’s assets are in generating revenue — has come down to 1.21 per cent in the second quarter of the current fiscal year from 1.75 per cent during the same period in the last fiscal year.

Similarly, low PE ratio has not been able to make investors comfortable as other key indicators of listed banks; like earning per share, return on equity, capital adequacy ratio, cost of fund and non performing assets could not ensure equal dividends compared to last fiscal year.

The measuring rod of the rate of return on shareholders’ equity of the common share holders, return on equity (RoE) has also come down to 11.54 per cent in the second quarter of this fiscal year from 17.17 per cent in the same period last year. It also revealed the efficiency of banks in generating profits from every unit of shareholders’ equity.

Similarly, earning per share — that is the amount of earnings per unit share — came down to an average of Rs 19.68 per unit in the second quarter of the current fiscal year as compared to Rs 25.98 per unit in the same period of the last fiscal year, which means shares could not earn as much as they earned thus investors will also get less returns.

Similarly, non performing assets (NPA) — that compels banks to make loan loss provisioning which hits their profits — has increased to 3.24 per cent from 2.49 per cent of the second quarter of last year, which means investors will get less dividends next year. NPA of some banks have reached the highest accepted level by the central bank, which will ban the banks to open new branches after they cross the minimum NPA level.

However, the capital adequacy ratio (CAR) has seen an increase to 14.04 per cent from 13.59 per cent of the second quarter of last fiscal year. The increase in capital adequacy ratio — that is a ratio of a bank’s capital to its risk to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements — shows further growth possibility of the banks through lending, which has contracted lately.

The central bank’s data has revealed that banks have a liquidity of Rs 29 billion till March 12. High interest rate has made the private sector shy away from borrowing despite banks sitting on surplus liquidity.

Banks have been unable to lower the interest on lending due to high cost of fund, which has increased to 8.38 per cent from 7.39 per cent in the same period last year. The cost of fund that is the interest paid on deposits has also forced banks to lower new deposit rates.

The industry average not only helps investors take informed decisions while buying shares but also helps compare the players within the sector on where they stand.

 

 

Source: THT

Foreign Employment: Nepalis now looking beyond Mid-east and Malaysia

KATHMANDU, MAR 22 - 2012

While the Middle East and Malaysia remain the largest recipients of Nepali migrant workers, more Nepalis are now heading to other job destinations in Australasia and Europe, according to the Department of Foreign Employment (DoFE).

A DoFE data shows number of workers leaving for countries like Japan, South Korea, Germany, Italy, Australia, Canada and the USA has surged by whopping 83.21 percent in the first eight months of the current fiscal year. The number of workers leaving for the Middle East and Malaysia jobs for the same period has increased by 17.73 percent.

“Workers’ departure for employment in developed countries is increasing through personal contacts,” observed Kasi Raj Dahal, director at the DoFE. He said that a majority of those workers were semi-skilled, skilled and professionals who are paid well.

Foreign employment agencies attribute the rising trend of workers leaving for developed countries to support extended by their relatives or Non-Resident Nepalis staying aboard. General Secretary at the Nepal Association of Foreign Employment Agencies Kumud Khanal said that manpower agencies were also capable of sending workers, but unlike in the case of Malaysia and Gulf countries the developed countries do not demand in bulk.

During the review period under the Employment Permit System (EPS), South Korean hired 1,687 workers, up from 1,189 individuals last year. Japan, which took in 326 Nepali workers last year, received 770 individuals this year following increase in demand for Nepali workers in hotel and restaurant lines. Dahal said that Japan had hired many cooks and waiters in restaurant line. “Other developed countries such as Germany and New Zealand took in Nepalis to work as au pairs (domestic help),” he added. Demand for Nepali workers from other Asian countries, including Hong Kong, Oman, Turkey, Macau, Singapore and China, has also increased.

Qatar, which has intensified infrastructure development for the 2022 Soccer World Cup, is the largest host of the Nepali migrant workers, followed by Malaysia, Saudi Arabia, UAE, Kuwait and Bahrain. Nepalis heading for Qatar has surged by 36 percent this year.


Source: Kantipur

66-km network, 5 lines, 31 stations

KATHMANDU, March 22-2012
The preliminary inception report on the much-awaited Metro Railway in Kathmandu that was submitted to the Department of Railways (DoR) by consulting companies this week has outlined five lines for the network -- four inside the Ring Road and one that will travel along the Ring Road.

The proposed 66.1-km network comprises 31 stations in total -- including transfer and ordinary stations. The main terminal of the metro will be located at Ratnapark, says the report, which is yet to be approved by DoR.

According to the report, the 27.35-km Line 1--which follows the Ring Road--will connect different locations between Kalanki, Satdobato, Chabhil and back to Kalanki.

The Line comprises 18 stations including transfer points at Kalanki, Balkhu, Satdobato, Koteshore, Tinkune, Sinamangal, Chabhil, Narayan Gopal Chowk and Gongabu, from where passengers can change trains. Line 1 will have pick-up and drop stations at Ekantakuna, Dhobighat, Sitapaila Chowk, Swoyabhu, Balaju, Machhapokhari, Tilangatar, Dhumbarahi and Gwarko.

Those who want to go from Kalanki to Sinamangal can take trains on Line 2. This Line will have six stations in places ranging from Kalanki and Sanogaucharan to Sinamangal. The Line will pass through the main terminal.

The preliminary report shows that Line 3 will link Koteshwore and Gongabu. It will have eight stations in places like New Baneshwore, Singha Durbar and Thamel and will pass through the main terminal.

Similarly, Line 4, which is 11.5-km long, will connect Satdobato and Narayan Gopal Chwok, while Line 5 -- the shortest at 8.4 kilometers -- will link Balkhu and Chabhil.

According to Rajeshwar Man Singh, superintendent engineer at DoR, the Metro Railway will travel above ground in some places, underground in some areas and on the surface in selected places.

“But how it travels in each specific area will be decided after the complete feasibility report is prepared,” Singh said.

DoR has given the consulting companies until November to prepare the complete feasibility report.

The feasibility report of the project -- which will be based on the preliminary inception report -- will be prepared by Korea Transport Institution, Chungsuk Engineering Company, Kunwa Cunsulting and Engineering Company, Korea Rail Network Authority and two local companies-- BDA Nepal Private Limited and ERMC Private Limited. These companies were also involved in preparation of the preliminary inception report.

“We have paid around Rs 60.5 million (to the companies) to prepare the preliminary report and conduct the feasibility study,” Singh said.

Source: Republica

Barun Hydro to go

KATHMANDU, MAR 24-2012

Barun Hydropower — which constructed the Hewakhola hydro-power project in Jaljala VDC of Sankhuwasabha — will be the fifth hydropower company to be listed at the Nepal Stock Exchange . The 4.5 MW hydel project with an authorized capital of Rs 35 million started commercial production on August 6, 2011. It has an issued capital of Rs 24.30 million, of which 30 per cent will be floated to the public, said the company that has appointed Civil Capital as its issue and sales manager for its primary shares. Civil Capital’s chief executive Bhisma Raj Chalise and Barun Hydro-power managing director Dedh Raj Khadka signed an agreement on behalf of their respective companies. “Of the 30 per cent public shares, the company will distribute 10 per cent shares to locals of Sankhuwasabha.

Source: THT

Listed PEs providing handsome returns

KATHMANDU, MAR 25-2012
Listed public enterprises (PEs) have not disappointed investors on the dividend front.

A majority of public enterprises have been incurring losses thus turning them into liabilities for the government but a few that are doing well have been distributing handsome dividends to investors.

Recently, Salt Trading Corporation (STC) announced 45 per cent dividend –– 35 per cent stock dividend and 10 per cent cash dividend –– for its stock holders.

There are nine active companies with a majority stake of the government that are listed at Nepal Stock Exchange. All the companies are earning profits, except for Nepal Film Development Corporation, thus giving out dividends to stock holders.

There are still 36 PEs under the government’s control among which only 22 companies are making profits, according to the Economic Survey 2011.

Nepal Telecom (NT) will distribute 45 per cent cash dividend to stake holders. Last year too it had distributed 35 per cent cash dividend. The company with its 150 million unit shares constitutes 25 per cent of the total market capitalisation of the stock exchange. The government holds 92 per cent stake in the telecommunication company.

Among the financial institutions, NIDC Capital Markets and Nepal Awas Bikas Bitta Company will provide dividends of 25 per cent and 15 per cent, respectively. But Agriculture Development Bank has yet to announce any dividend since its listing about two years back.

“These companies are able to give more dividends but being government owned entities there is less pressure on them to appease retail shareholders like other listed companies,” said general secretary of Nepal Investors’ Association Prakash Rajoria, referring to the monopoly enjoyed by government companies.

Most of these government owned companies enjoy a monopoly in their respective areas making it profit generating entities. NT, despite the existence of new telecom companies, enjoys a near-monopoly situation. Likewise, STC has a monopoly over salt distribution nationwide. Chilime Hydropower also being Nepal Electricity Authority’s subsidiary has a ready buyer at hand.

He pointed out that stocks of government companies are for risk aversive investors as they neither give high returns nor fall to an abysmal low. “The government’s backing is an assurance for investors that the chances of the company collapsing is low even during a bad phase unlike companies with private promoters,” he said citing the example of Nepal Bank that was de-listed due to its financial troubles but the hope of the bank again being listed is still intact as shown by its improved condition.

According to experts, during a bearish run, investors look for underlying benefits like cash dividends and bonus shares instead of short-term returns. Even though the short-term return from share investment is non-existent, a handsome dividend can make up for any losses.

Source: THT

Petroleum talks between NOC and IOC begin

KATHMANDU, MAR 25 - 2012

It is likely that Nepal will continue with Indian Oil Corporation (IOC) as its supplier of petroleum products for the next five years even though the government has directed concerned authorities to explore options for other potential suppliers.

With seven days left for the agreement to expire between Nepal Oil Corporation (NOC) and IOC, both parties have speeded up work to finalise the new agreement.

State-owned NOC and IOC are drafting the agreement paper to renew their five-year petro supply agreement for the import of petroleum products to Nepal from India, said an official at NOC.

“Nepal will most likely keep open the option of importing fuel from third countries in the agreement but it will not look for an alternative to IOC as of now,” the official claimed.

A team from IOC is currently visiting Nepal to sort out all issues which have remained unresolved and to finalise the draft of the agreement.

“Representatives of both NOC and IOC are trying to solve all contentious issues,” the NOC official said. “Unsolved issues are still being discussed at the top level which are expected to be solved by tomorrow.”

The five-year contract agreement between NOC and IOC is a government-to-government supply arrangement under which India, through IOC, is meeting all of Nepal’s petroleum demands via NOC. The existing agreement will expire on March 31.

Both NOC and IOC have made some progress to sign the new agreement, the NOC official revealed.

IOC has already agreed to drop costs associated to refineries and duties, which is known as the Price Adjustment Factor (PAF) under its current price formula.

But, the withdrawal of PAF from the pricing structure has not satisfied the Nepali side. IOC has proposed to raise the other components of the price formula –– the marketing margin –– to 5 per cent from the existing 2.5 per cent levied on the outright prices of the finished products

“NOC will try its best to keep the marketing margin unchanged at 2.5 per cent or to introduce a flat commission system,” the official informed.

Similarly, Nepal has also proposed to reduce transportation price and port-facilitator cost on Liquefied Petroleum Gas, according to the official.

Petroleum business is considered a very sensitive issue since the country does not have any refinery and meets all its petroleum demands through imports from IOC at present.

Source: THT