Auto sales plunge as banks tighten credit in Nepal

13:13, June 03, 2010      

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The four-wheeler market in Nepal that enjoyed over five straight years of robust expansion now seems cooling down, thanks to the banks chocking off auto loans. The plunge in demand in the auto market is so deep that some leading car dealers call it the most severe "recession" in recent memory.

According to Thursday's Republica daily, leading global brands like Nissan, Chevrolet and Honda say that their sales have gone down to half of what they used to be just six months back.

"There is more than 50 percent decline in sales of private vehicles from Nissan, whereas sales of commercial vehicles have plummeted nearly 90 percent," said Shambhu Subedi, senior manager of Nissan Vehicles, Dugar Brothers & Sons.

The single reason for the decline, all of them say, is the wedging of auto loans that have come down to almost nil, as the credit exposure of most established banks has already crossed the limit set recently by Nepal Rastra Bank, the cenral bank of the country.

Not that all banks have stopped lending. Some banks with comparatively comfortable portfolios are still lending but the rates have gone up to 16 percent from around 7-8 percent just a year back.

This is natural when banks are compelled to pay 12 percent for fresh one-year deposits, says Rajan Singh Bandari, CEO of Citizen Bank, adding, "16 percent interest becomes normal when you add 4 percent cost of funds," he said.



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