Laxmi Capital News
Banks still facing tight lending condition

Deposits grew by Rs 72 billion, while lending saw a riseof Rs 68 billion Q3

KATHMANDU, April 20: The latest deposit mobilizationand loan disbursement figures of commercial banks indicate that banks are stillin tight lending condition. 

Commercial banks added Rs 72 million in deposits anddisbursed loans worth Rs 68 billion in the review period which means banks arenot yet in a comfortable lending position.

A compilation of deposit and lending figures of 28commercial banks released by Nepal Bankers Association shows that outstandingdeposit (local currency) of commercial banks is Rs 2,190 billion, while theirtotal lending is Rs 1,958 billion as of third quarter-end (March 13). 

While banks have slowed down their lending in the thirdquarter, the difference between the deposit and credit growth is not much wide.However, the mismatch between deposit and credit growth ended in the thirdquarter. 

In the second quarter, the deposit of banks has increasedby 79 billion while they floated new loans worth a whopping Rs 130 billion.

Bankers say that the increasing government expenditure inthe third quarter has increased their deposits, while they have curtailedlending due to the rise of their credit-to-core-capital-and-deposits ratio(CCD). 

The cumulative impact of slow deposit growth compared tocredit growth has increased CCD ratio of banks. Banks are not allowed to lendmore than 80 percent of their core capital and deposits combined. 

Lower deposits continue to squeeze banks' ability tolend. Growth in deposits has declined steadily over the past two years since itpeaked at 24.2 percent in December 2015. 

As of third quarter, the average CCD ratio of 28commercial banks stands at 78 percent. This tighter CCD ratio position requiresbanks to either increase their deposit stocks or curb their lending to remainunder the prudential lending limit. 

The tighter lending condition means interest rates areless likely to see correction anytime soon. Banks have been offering fixeddeposit rate of 11 percent. 

As the remittance growth has squeezed and the governmentspending continued to remain low, banks have been seeing a slow growth in theirdeposits. On the other hand, they are under pressure to increase lending toensure return to their shareholders in the aftermath of the rise in theirpaid-up capital. 

The World Bank recently said that the continued borrowingby the government, even as it accumulated large deposits, is likely to havecontributed to the problem. Government borrowing reached Rs 365 billion in February2018, even as the its deposit in the NRB account stood at Rs 302 billion. 

“These deposits, which are held at the NRB, effectivelyremain outside the banking system, and have contributed to creating andsustaining the credit squeeze in the financial system,” read the NepalDevelopment Update of the World Bank released on Wednesday. 

The central bank is, however, hopeful that the increasinggovernment spending will help to ease the current shortage of lendable fund inthe banking industry.

“Fiscal operations are gaining momentum following thesuccessful conclusion of elections and the formation of government at local,provincial and central levels,” read the recent macroeconomic update report ofthe NRB.  “The acceleration in fiscal operations is expected to amelioratefinancial conditions in the days ahead.”


Source : My Republica, 20thApril 2018

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