NEPSE and Ratio of Market Cap to GDP

The NEPSE index as at Mid-January 2018 closed at 1,431.10 points compared to 1,479.86 points in the same period last year, which is a decline of 3.29%. Whereas, the market capitalization of NEPSE has increased from NPR 1,660.28 billion in Mid-January 2017 to NPR 1,671.61 billion in Mid-January 2018.

On the other hand, the ratio of market capitalization of NEPSE to GDP as at Mid-January 2018 has dropped down to 64.3% compared to 73.9% in the last year during the same review period.

Interest Rates

Interbank Rate

Though the interbank rate among commercial banks as at January 2018 has dropped down to 4.40% compared to 4.83% in the previous month, it is still on the higher end indicating commercial banks are facing difficulty in maintaining their CD ratio and are in shortage of loanable fund.

Base Rate

The base rate of commercial banks is hovering at 9.94% as at Mid-January 2018 compared to 9.873% in the previous month. Last year during the same review period, the base rate of commercial banks stood at 7.10%, meaning the borrowers have to pay higher interest rate at present, which is a major setback for them.

Inflation Rate

The consumer price inflation in Nepal stands at 4.0% in Mid-January 2018 and is on the lower side in the first six months of this fiscal year compared to previous two fiscal years. Ongoing market interest rate on deposits or, government bond and corporate debentures can easily beat this inflation rate.

 

Deposit Growth

The deposits of BFI’s as at January End, 2018 increased to NPR 2,535.27 billion by 6.74%, compared to NPR 2,375.11 billion in July End, 2017. The growth during the same period in last year was 7.00%. Out of the total deposits at the BFIs, the share of demand deposits increased from 8.2 percent to 8.4 percent and fixed deposits from 32.8 percent to 42.8 percent in mid-January 2018 compared to a year ago. However, the share of saving deposits decreased to 36.4 percent from 42.1 percent a year ago. The share of institutional deposits in total deposit of Bank and Financial Institutions (BFIs) declined to 44.3 percent in mid-January 2018 from 47.6 percent a year ago.

 Rs. in millions
Year July End January End % Change
2016/17      2,109,070.92       2,256,802.79 7.00%
2017/18      2,375,106.68       2,535,270.72 6.74%

 

Credit Growth

The credit disbursement of BFI’s as at January End, 2018 increased to NPR 2,208.85 billion by 11.21%, compared to NPR 1,986.23 billion in July End, 2017. The growth during the same period in last year was 12.68%.

Moreover, if we compare the credit growth rate with deposit growth rate of BFI’s, then the credit growth rate is much higher than the deposit growth rate, due to which BFI’s are facing credit crunch to disburse further loan and maintain the CD ratio in line with the NRB directives.

Liquidity Management

Total liquidity mopped up in the first six months of FY 2017/18:

Instruments Rs. (in Billion) Last Year
Deposit Collection Auction 42.35
14 days deposit collection auction under interest rate corridor 2.1
Reverse Repo 84.75
Total mopped up Liquidity 129.2 101.1

 

Till the first six months of FY 2017/18, NRB has mopped up NPR 129.2 billion through open market operation, out of which NPR 42.35 billion was mopped up under deposit collection auction, NPR 2.1 billion through 14 days deposit collection auction under interest rate corridor and NPR 84.75 billion through reverse repo auction on a cumulative basis. In the corresponding period of the previous year, NPR 101.10 billion liquidity was absorbed.

Total liquidity injected in the first six months of FY 2017/18:

Instruments Rs. (in Billion) Last year
Liquidity injected through repo auction & Outright Purchase 69.33 15.4
Liquidity injected through purchase of USD 198.04 219.35
SLF utilized by BFI’s 23.58 13.98

 

In contrast, in the first six months of FY 2017/18, NRB injected Rs. 198.04 billion through purchase of US dollars, whereas NPR 69.33 billion was injected through repo auction and outright purchase in the wake of liquidity crunch in the banking system compared to NPR 15.40 billion last year during the same period. In addition, the BFI’s has also utilized Standing Liquidity Facility (SLF) of NPR 23.58 billion in the first six months of this fiscal year to further manage the liquidity in the banking system. The BFI’s had utilized such facility of NPR 13.98 billion only during same period last year.

 

Fiscal Situation

Budget Deficit/ Surplus

In the first six months of 2017/18, the Government of Nepal (GoN) was at a deficit of Rs. 35.47 billion in its budget. There was surplus of Rs. 40.22 billion in the corresponding period of the previous year.

Government Revenue and Expenditure

Rs. in billion
First Six Months Govt. Exp. (Cash Basis) Govt. Revenue
2015/16 159.4 164.33
2016/17 248.2 277.57
2017/18 364.95 335.1
Y-O-Y Growth in 16/17 55.71% 68.91%
Y-O-Y Growth in 17/18 47.04% 20.73%

 

In comparison to first six months of FY 2016/17, the government expenditure has increased by 47.04% to NPR 364.95 billion after successful completion of state and central level election, helping to inject some liquidity into the system.

On the other hand, the government revenue witnessed the growth of 20.73% compared to corresponding period of the last fiscal year. The government revenue for the first six months in this fiscal year stood at NPR 335.10 billion compared to NPR 242.97 billion in the first five months mainly due to half yearly tax collection at the Poush End.

 

Balance of Payment Position

(Rs. in million)
Particulars 2015/16 2016/17 2017/18 P
6 Months 6 Months 6 Months
A. Current Account 157,516.35 (1,078.56) (75,709.82)
B Capital Account (Capital Transfer) 7,405.00 7,933.72 10,066.00
C Financial Account (Excluding Group E) (528.92) 15,104.38 27,431.29
BOP ( + Surplus / – Deficit ) 139,749.49 44,998.81 (6,664.49)
*P = Provisional

 

The country’s BOP position is in deficit by Rs. 6.66 billion till the first six months of FY 2017/18, mainly due to huge deficit seen in current account by Rs. 75.71 billion as a result of elevated level of imports and a decline witnessed in worker’s remittance. During the corresponding period in last year, BOP was at surplus by Rs. 44.10 billion, whereas the current account was at deficit by Rs. 1.08 billion.

In the review period, Nepal received capital transfer amounting to Rs. 10.07 billion and Foreign Direct Investment (FDI) inflows of Rs. 14.33 billion. In the same period of the previous year, capital transfer and FDI inflows had amounted to Rs. 7.93 billion and Rs. 7.39 billion respectively.

 

Remittance

Looking at the first six months’ data of FY 2017/18, the worker’s remittance has witnessed a slight incline of 3.83% to reach $3,303.90 million compared to 3.33% growth in 2016/17.

As per the data of Department of Foreign Employment, the number of Nepalese workers seeking foreign employment has decreased by 1.8 percent in the review period. It had decreased by 9.9 percent in the same period of the previous year.

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