Laxmi Capital News
Loan disbursement of banks rises while deposits fall

Deposit collection ofcommercial banks in the first month of the third quarter has fallen, while loandisbursement is on the rise, a recent data of Nepal Bankers Association (NBA)shows.

According to the data,total deposits of 28 commercial banks fell by Rs 7 billion to Rs 2,207 billionbetween January 14 and February 15. Credit disbursement during the period,however, rose by a whopping Rs 30 billion to Rs 1,952 billion. Banks added Rs 5billion in loans in the last week of the month (between February 9 and February15) alone, according to the data.

Though bankers havebeen saying that they have slowed lending in the wake of shortage of lendablefunds in recent weeks, the data of the NBA suggests otherwise. 

The mismatch in depositand credit growth indicates that the interest rates are unlikely to fallanytime soon. As bank and financial institutions (BFIs) are competing to luredeposits, interest rates on fixed deposit have already reached 13 percent whilethe lending rate is also on an upward trend. 

As credit flow of banksstarted rising due to aggressive lending, credit to core capital-cum-deposit(CCD) ratio of many commercial banks has reached close to the regulatory limitof 80 percent, making it difficult for them to expand loans. The rise in depositrates, however, has not helped banks to attract deposits. Many bankers say thatthe deposit has been moving from one to another bank rather than new moneyentering into the financial system.

Though bankers wereexpecting the NRB to come up with some relaxations on CCD norms through themid-term review of the monetary policy like it did last year, the central bankdid not bring any such measure this time. In its mid-term review report, it,however, indicated that it would pursue a lenient approach on enforcement ofprudential lending limit. Though the NRB said that it will monitor the dailyposition of credit to core capital-cum-deposit (CCD) ratio of bankinginstitutions, it will, however, penalize them only if there is breach inprudential lending limit in monthly average ratio. 

The announcementprovides some relief to banking institutions who were worried about the centralbank action about the breach of the CCD ratio of 80 percent. 

The surge in lending ofBFIs comes despite the central bank's advice to banking institutions to becomecautious in their lending approach. “

"Given the declinein remittance flow, deposit growth is expected to remain moderate. Once thisbecomes a key consideration for planning credit, financial imbalances currentlyseen will get corrected in due course of time," read the CurrentMacroeconomic and Financial Situation of Nepal (based on six months data of thecurrent fiscal year) prepared by the NRB's Research Department.

Source: My Republica,22nd February 2018

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