KATHMANDU: Hire purchase loan investments by banks and financial institutions increased by 4.1% over the first nine months of the current fiscal year 2024/25.
According to a recent data from the Nepal Rastra Bank (NRB), banks and financial institutions invested Rs 5.09 billion in hire purchase loans between mid-July last year and mid-April. With this, the total outstanding hire purchase loans increased from Rs 124.10 billion in mid-July last year to Rs 129.20 billion in mid-April.
After two years of decline, hire purchase lending has rebounded this fiscal year as the economy shows signs of revival. With increased economic activity, vehicle sales have surged which has driven growth in hire purchase loan disbursements.
The sector is now more active, according to automobile dealers. They added that both vehicle imports and sales have risen this year compared to last year. Import data over the first nine months of the current fiscal year substantiates their claims. Customs data shows Nepal imported more than more than 11,000 four-wheelers and 80,000 two-wheelers in the nine-month period.
Despite tighter regulations by the central bank, banks and financial institutions have continued to boost hire purchase lending. In its mid-term review of the Monetary Policy, NRB reduced the loan-to-value ratio for electric vehicles (EVs) from 80% to 60%. Additionally, hire purchase companies are now restricted from financing more than 60% of a vehicle’s value. Even so, banks and financial institutions disbursed over Rs 5.5 billion in new hire purchase loans this fiscal year.
Despite tighter regulations by the central bank, banks and financial institutions have continued to boost hire purchase lending.
Shift from Commercial to Personal Vehicles Financing
Banks and financial institutions issue hire purchase loans for both commercial and personal vehicles. While loan investments in commercial vehicles have decreased in the review period, those in personal vehicles have risen sharply, central bank data shows.
Investments in commercial vehicle loans dropped by Rs 600 million—from Rs 87.26 billion in mid-July last year to Rs 86.65 billion by mid-April. Meanwhile, loans for personal vehicles grew by Rs 5.70 billion to Rs 42.54 billion in mid-April—a 15.5% growth
This shift has been attributed to stronger demand for personal vehicles compared to commercial ones. Bankers also say that repayments of older commercial vehicle loans have outpaced new lending, leading to an overall decline in the commercial segment.
Despite the decline, investment in commercial vehicles still far higher than in personal vehicles. As of mid-April, banks have invested Rs 87.25 billion in commercial vehicles, more than double the Rs 42.5 billion invested in personal vehicles.
