Laxmi Capital News
Bank deposits expand as govt expenditure increases

Focus on loan recovery, depositgrowth likely to ease pressure on banks' liquidity situation

KATHMANDU, May 27: Bankinginstitutions that are facing shortage of lendable fund are now feeling a sighof relief with the recent rise of stock of deposits as the government expeditesdevelopment expenditures at the end of the fiscal year.

According to the latest data of NepalBankers Association (NBA), the total deposit of 28 commercial banks rose by0.83 percent, or Rs 19 billion, in the week ending on May 18 while their loandisbursement grew by Rs 17 billion. The total outstanding deposit of allcommercial banks stands at Rs 2,312 billion while the lending is Rs 2,040billion, according to the NBA data.

Marking an end to the year-long trend ofcredit growth outpacing deposit, credit growth slowed down in the review periodwhile stocks of deposit rose in the banking system.Mostof the bankers attribute the deposit growth to the government spending at thefiscal year end.

With the fiscal year end one month away,the government is ramping up its development expenditures. Similarly, thepayment to contractors and other parties by the government agencies, which havebeen held due to various reasons, get released in the eve of the fiscal year,helping to shift more cash from government treasury to the banking system.

According to the Financial ComptrollerGeneral Office, the capital expenditure of the government stands at 40.93percent, or Rs 137.18 billion, as of May 17. The government has a target tospend Rs 335.18 billion by the end of the current fiscal year 2017/18.“Like inthe previous years, the pattern of the government spending has remained thesame. As the government has increased spending, deposit in the banking systemhas also increased,” a bank executive told Republica.

“The last quarter is the period whenbanks focus on recovery of loans rather than on new lending,” said anotherbanker.

Fast deposit growth and slow creditgrowth are likely to ease the pressure on credit to core capital cum deposit(CCD) ratio of banks. Many banks have seen their CCD ratio reaching theregulatory limit of 80 percent.

The CCD ratio which remained at asaturated level almost all the year was due to 'aggressive' expansion oflending by banking institutions to meet the shareholders' expectation ofreturns although there was slowdown in the flow of deposits. With the shortageof deposit to extend as loans, banks have even competed to lure each other'sdepositors through various schemes including upfront interest payment to depositors.The NBA even imposed a cap the fixed deposit rate at 11 percent and saving rateat 8 percent despite criticism that such move amounts to a 'interest ratecartel'.

Source: MyRepublica, 27th May 2018

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