An overview of BFLs how it is struck on COVID-19 pandemic

Financial conditions of emerging economies have tightened due to higher external financing costs, rising distinctive risks, and rising trade pressures. All these improvements and declines in advanced and emerging market economies have jointly created a threat to the world economic stability. BFIs should focus to reduce global poverty and improve people’s living conditions and standards and to support sustainable economic development and to promote cooperation and integration entire the country.

Nepalese financial system has been regulated by different regulators in the sectors of banking, insurance, securities markets, contractual saving institutions, and other service sectors. NRB, as the central bank, regulates commercial banks, development banks, finance companies, microfinance financial institutions, FINGOs, and cooperatives carrying out limited banking activities. Besides, NRB also supplies approval to eligible institutions to work as hire purchase companies.

A financial institution is a company involved in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. The major categories of financial institutions including central banks, commercial banks, development banks, finance companies, microfinance, cooperatives, investment companies, brokerage firms, insurance companies, and mortgage companies are involved in financial activities.

Financial institutions that focus on dealing with financial transactions, such as investments, loans, and deposits. Almost everyone has a deal with a financial institution regularly. Everything from depositing money to taking out loans and exchange currencies must be done through financial institutions. Right now, financial institutions are fighting against the Covid-19 pandemic since the seventh month before. Due to the COVID-19 pandemic and resulting lockdown the sector of tourism, industrial sector, manufacturing sector, hydropower sector, education sector, entertainment, media, gyms, temples, monasteries, churches mosques, health clubs, museums, transport, enterprises, and hotel, almost sectors are hit hard, and normal life has been brought to a standstill.

The lockdown curfews, self-isolation, social distancing, and quarantine have affected the overall physical, mental, spiritual, and social wellbeing of the Nepalese. From the knowledge of the global scenario and Nepalese context, almost sector is going down due to coronavirus. As the spread of coronavirus has created risks in multiple sectors, the government has come up with some measures to tackle those impacts of COVID-19 on the economy and other areas expecting to keep stability.

Globally, all the country is in a difficult situation. All the problems that we meet are not created by ourselves. Daily-wage workers/employees are primarily facing two types of problems: first, their income source has stopped with lockdown, and second, they have no stock of daily essentials for the future. Social activists have been servicing in KhullaManch of Kathmandu by supplying foods to the people those who are out of food to eat.

In this context, the mobilization of local levels has been looked at to find such community and take measures for preventing them from suffering hunger by ensuring their daily minimum food requirement which is most. The economic damage caused by the COVID-19 pandemic is largely driven by a fall in demand, meaning that there are no consumers to buy the goods and services available in the market. The Government of Nepal has kept banks and financial institutions under essential services to be run during the lockdown. It has occurred that the economic growth rate is getting slowdown due to the prevalence of nationwide lockdown enforced to suppress the spread of the COVID-19 pandemic and reduction in production, service sector, and many more.

The cumulative impact of a pandemic leads to a disorderly of short-term revenue and expenses in the banking sector. There may be a significant drop in Profit. As the demands of the next coming months will be changed from what was predicted by the financial institutions. The bank’s operating model needs to change to meet governance responsibilities such as managing risk, supplying reliable challenge to management, and acting as liable factors of the organization.

The COVID-19 induced market environment made negatively affect banks’ credit rating profile or other business risk factors that increased and affected the comfort of banks, counterparties, and borrowers, especially in the high yield grade. Credit expansion is one of the key indicators of how the economy is performing in its business. Banks should remain focused on keeping ongoing operations, given the increased difficulties of going with such operations remotely. During the fifth-month lockdown, around 70 percent of the factories are shutting down completely, according to a central bank (NRB) study. We are losing from almost every sector. The contribution of employees in this pandemic despite being psychologically and physically hit hard is admirable.

The economic scenario is also very volatile and overall, Nepal’s foreign exchange reserves were Rs 107 billion in 2058 BS, which is now Rs 1,402 billion. Almost all segments are negative growth. The world is during a COVID-19 pandemic. Nepal where we are fighting against the COVID-19 pandemic for seventh months earlier. Many countries are supporting their citizens with sophisticated health safety-nets and various relief funds, some developing countries have unique challenges with vulnerable populations and limited resources to respond to a pandemic like Nepal. The economic depressions have put significant financial pressure on many financial institutions. Citizens are distracted by rising infection risk and uncertainty everywhere.

Banks and Financial Institutions (BFIs) in Nepal are licensed by Nepal Rasta Bank as of Mid Jul 2020, Commercial Banks 27, Development Banks 20, Finance Companies 22, Micro Finance Financial Institutions 85, other institutions 14, and Infrastructure Development Bank 1.

The financial institutions have been playing a distinct role in fulfilling the demand of the public. The growth of the financial services sector is highly important for a nation’s economic growth and sustainable development. Its importance to economic growth arises from its critical role in empowering financial function. Nowadays, the banking sector acts as the backbone of modern business. Commercial banks are the main pillar for making the economic growth upgrade and enhancement that affects the national economic growth by its services.

At present, the impact of COVID-19 banks and financial institutions are in critical condition. Almost financial institutions have loosed their profit /income compared to last year. A public deposit is the main resource. Nepal Rastra Bank has directed the commercial bank to keep the spread rate at a maximum of 4.5 % by the end of the current fiscal year. The upper limit for B & C class financial institutions has been set 5%. Development banks & finance companies must reach this limit by the next fiscal year starting. The impact of the COVID-19 market is all most closed. There is no mobility of business. Nobody can run their business without the market economy movement. Due to the blockage of business, people are in hand to mouth problems. Daily life is getting out of order or out of the chain of the cycle.

The market economy is in a thoughtful position. There is no demand for loans. Interest is the main resource of income for financial institutions. Those financial institutions who use the maximum resources and deliver massively loan to their customer they can able to earn more profit than others. Due to a lack of disbursing loans, as the resulting income is getting slowdown to the financial institutions. According to NRB more than 3.5 Trillian deposit ending of the year 2076 is in a commercial bank. If the volume of the deposit is going up, normally the cost of funds goes to increase. The graph of financial institutions’ recovery rate is going downward. Almost Bfis, a great challenge to sustain and keep the office as usual position. The ratio of total assets to GDP is 104.30 percent of commercial banks, 13.20 percent of development banks, 3.20 percent of finance companies, and 7.90 percent of microfinance financial institutions, according to the fourth quarter report of Nepal Rastra Bank 2075/076. According to the financial statements published by the various financial institutions, the profit of financial institutions has been lacking due to corona. The cost has been borne by adding liquidity.

All the banks have earned a total profit of Rs 54.30 billion. The previous year’s profit was Rs 61.84 billion. Financial institutions this year’s profit is 12 percent lower than last year. The failure to raise interest rates has led to a decline in its profits. Based on the details of all the banks, Bfis have not been able to raise interest rates, which has mislaid up profits. Although interest could not be raised due to the lockdown, deposit collection has been going up.

I think mainly damage to the microfinance sector and cooperative sector impact of coronavirus. There is an increase in bad loans and on the other hand, only 2 to 5 percent of deposits and loans have been performed. Socio-economic status is now being crushed by COVID-19. Employees are also at the position of under stress.

At present, the resources of income are getting downward, but the expenditure is adverse. So, therefore, it is a great task to the financial institutions to survive in such a market economy. Right now, it is hard to determine at this stage. Financial institutions have significant difficulties and challenges to deliberating services, survival on its all functions although careful steps must be performed & management must be frequent and expansive.

At present financial Institutions should focus on this point:

• restructuring of the loan
• Rescheduling of loan
• Expansion of loan at potential areas
• Virtual meeting
• Wait & see at the sector of most affected areas
• Focus on minimizing the cost.
• Update on the global economy
• Follow the thoughtful idea of banking expert
• Apply the rules & regulations directed by the central bank (NRB).
• Update digital tools & technology and Social Media
• Alert for incoming incidents.
• Habituate on digital payments & practice
• Minimize the operational risk
• Minimize spending on activity that doesn’t build your core capabilities.
• Every decision should be specific, facts & safe
• Need to innovate and expand the services to help rebuild the small businesses
• Need to keep an eye on strategy and brand issues that will define the future
• Focus business continuity planning on issues for survival
• Rethink balance sheet challenges while managing loan stress and customer sensitivity
• Reset your revenue outlook
• Make the proper plan for COVID-19 strategy
• Mutual relation in between union & management