Tepid deposits growth worries bankers

Published On: June 15, 2017 02:00 AM NPT By: Republica  | @RepublicaNepal

Govt spending has not pumped much cash into banking system

KATHMANDU, June 14: Banks have not seen significant improvement in deposit growth even in the second last month of the fiscal year. 

The government spending has not pumped much cash into the banking system against the expectation of bankers that increased development expenditure in the last months of the fiscal year will help them resolve the problem of credit crunch to some extent. Nor has the competition to raise interest rates on deposits helped banks to attract new savings.

Recent figures of loans and deposits mobilization by 28 commercial banks show that there has not been much growth in deposits, while loan disbursements of the banks have also remained static. 

According to the data compiled by Nepal Bankers' Association (NBA), the total deposits of 28 commercial banks went down by Rs 1 billion to Rs 1,964 billion between June 2 and June 9. During the period, they floated new loans worth Rs 1 billion.  However, deposits toward local currency has gone down by Rs 3 billion to Rs 1,869 billion, while foreign currency deposits increased by Rs 2 billion in the review period. In the previous week (between May 26 and June 2), local currency deposit had increased by Rs 18 billion, while foreign currency deposits fell by Rs 8 billion to Rs 93 billion. 

A banker attributed the big fluctuation of local and foreign currencies deposits to the filing of tax by a big multinational company by converting some of its deposits in foreign currency account into local currency. 

“If this fluctuation is not considered, deposit is growing, albeit at a slow pace. Lending has also not gone up much,” added the banker. 

Despite tepid deposits growth, the continued growth in loan flow is mainly due to a recent relaxation offered by the Nepal Rastra Bank (NRB) for calculating the prudential lending limit ratio, known as credit to core-capital-cum-deposit (CCD). 

NRB offered a relaxation to the BFIs through mid-term review of the monetary policy for calculation of the CCD ratio which allowed them to float loans without adding deposits.  The central bank allowed the bank to subtract 50 percent of productive sector loans from the CCD ratio until mid-July this year.

This regulatory relaxation implies that banks can extend loans equivalent to 50 percent of the credit expanded in the productive sector even without getting fresh deposits.  

This relaxation will continue till mid-July, making it difficult for many banks to maintain the CCD ratio when this relaxation expires. 

Bankers term the situation uncertain. “It's still uncertain whether the relief will be renewed in the upcoming monetary policy,” Ashoke SJB Rana, the CEO of Himalayan Bank Ltd, said. 

“Everything looks uncertain for now. Fresh deposits do not seem to coming into the banking system. What's happening is the same deposit, particularly the corporate and institutional deposits, shifting from one bank to another amid competition of raising interest rates.”

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