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Is the banking sector an attractive one to bring in foreign investment in Nepal?

The banking sector is an industry and a section of the economy devoted to the holding of
financial assets for others and investing those financial assets as a leveraged way to create more
wealth. This too incorporated the direction of keeping the money exercises by
government offices, protections, contracts, financial specialist administrations, and credit cards.
The history of managing an account in Nepal dates back to the year 1937 Advertisement with
the foundation of Nepal Bank Restricted as the primary commercial bank in Nepal. Afterward,
Nepal Rastriya Bank was built up in 1956 as the Central Bank of Nepal. There are as of
now twenty seven „A‟ course commercial banks in Nepal as per the Rastriya Bank report of Mid
July, 2021.

(Pant & Sigdel 2004) Foreign direct investment refers to an investment involving a long-term
relationship and demonstrating a lasting interest and control by a resident entity in one country in
an enterprise resident in a country other than that of the foreign direct investor. Any investment
that flows from one country into another is also known as foreign investment. (Jude & Levieuge
2013) Foreign investment is “encouraged since it complements and stimulates domestic
investments in capital scarce economies of developing countries”.

Nepalese Banking sector was made open for foreign investment in the 1980‟s (International
Trade Administration | Trade.gov 2022). Nepal advances outside speculation within the shape of
joint wanders with Nepalese financial specialists as well as 100% foreign-owned businesses.
The part of FDI has ended up progressively significant as Nepal has moved toward distant better;
an improved financial way in later a long time. Nepal has had a troublesome time drawing
in outside speculation. Since 1981, when FDI controls and arrangements were presented, Nepal
has been endeavoring to empower FDI into the economy. Concurring to Nepal Rastriya Bank,
FDI inflows diminished to $115.5 million in financial year 2018- 19 after expanding in past a
long time. In spite of the fact that commitments have remained comparatively much higher, FDI
realization has remained too.

There are variables that make banking sector attractive for investment; at the same time, there
are few components that make the banking sector less engaging for investment. A few of
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these variables have high regulation and seen chance in trade extension. On one side, high
regulation in banking sector makes it safer; on the other side, high regulation makes it difficult
for banks to operate. It reduces control to a great degree in the operation of business.
For case, during the period when commercial banks‟ least paid up capital necessity had
been expanded to 8 arba, numerous joint wander banks found it troublesome to meet the
capital prerequisite within the due date relegated. (Tuhin 2022) CFC Bank of Bangladesh that
had equity stake in Nepal Bangladesh Bank has been in process to sell out its equity. This, to
some extent, shows the willingness of the investor bank to exit from the partnership.

Right now the banks and money related teach in Nepal are quickly looking for mergers and
securing with other divisions members for arranging to meet the recently built
up capital prerequisite which is setup by the Nepal Rastriya Bank. Concurring to the central
bank expanding the paid up capital of banks and budgetary institution will make them more
grounded and guarantee the system's money related soundness. Nepal Rastriya Bank upheld bank
and monetary teach to extend the capital by 4 times through money related approach of 2015.
This occurrence appears that the managing a banking sector in Nepal are in require of the capital
for assist development, development and advancements and require foreign investment.

The later COVID 19 flare-up has caused extreme affect in managing account businesses of
Nepal. Most of the commercial banks in Nepal are confronting the deficiency of
capital. Usually since the businesses are not being able to produce benefit. The trust of a post-
pandemic financial recuperation in Nepal has been met with a detour of liquidity
crunch inside the Banks and Financial Institutions (BFIs). The current liquidity crisis
has developed within the wake of expanded credit payment to empower financial action within
the nation and cultivate financial recuperation. An increment in credit payment has not been met
with a comparable increment in stores. In this situation getting an outside speculation in keeping
banking sector secured would be a great.

In conclusion, there are opportunities for investing in Nepal, but the public investment has been
limited, and the country has been unable to crowd in possible private sector investment. And
Nepal's performance in terms of foreign investment is declining year by year as Nepalese
banking system lacks adequate capital to attract foreign investment. Foreign direct investment in
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the short term are not necessarily positive in developing countries like Nepal but it can lead to a
better opportunities in long term. So I think Nepalese Banking Sector is not an attractive one to
bring in foreign investment in Nepal.

Total Words: 818

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References

International Trade Administration | Trade.gov. 2022, Nepal - Trade Financing, International

Trade Administration| Trade.gov., Viewed 30 January 2022,

<https://www.trade.gov/country-commercial-guides/nepal-trade

financing#:~:text=Since%20then%2C%20several%20joint%20venture,Nepal%20Credit

%20and%20Commerce%20Bank>

Jude, C & Levieuge, G 2013,' Growth effect of FDI in developing Economies: The role of

institutional quality', Orleans Economics Laboratory, University of Orleans,

<https://ideas.repec.org/p/leo/wpaper/2251.html>

Pant, B & Sigdel, BD 2004, Attracting FDI: Experiences and Challenges, Kathmandu: Nepal

Rastra Bank Nepal,

https://www.nrb.org.np/contents/uploads/2019/12/NRB_Working_Paper-NRB-WP-1-

April_2004Attracting_Foreign_Direct_Investment_Experiences_and_Challenges-

Bhubanesh_Pant_PhD_and_Bama_Dev_Sigdel_PhD.pdf

Tuhin, AH 2022, Kathmandu District Court issues stay order on selling NBB shares by IFIC

Bank, The Business Standard, viewed 30 January 2022,

<https://www.tbsnews.net/economy/banking/kathmandu-district-court-issues-stay-order-

selling-nbb-shares-ific-bank-357907>