Bank lending continues to rise, deposit base falls

Published On: May 10, 2017 01:00 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, May 10: Banks are struggling to attract deposits despite rise in demands for loans. 

Deposit base of banks contracted by Rs 3 billion last month, as banks added new loans worth Rs 24 billion.

According to Nepal Bankers Association (NBA), cumulative deposit of 28 commercial banks plunged to Rs 1,944 billion on April 28, down from Rs 1,947 billion recorded on March 31. Lending, on the other hand, surged to Rs 1,658 billion from Rs 1,632 in the same period, data shows. 

Bankers say that the fall in the deposit base could be mainly due to withdrawal by business firms and companies to file taxes toward the end of the third quarter. “The government's treasury surplus has increased significantly in this period. This indicates that the rise in surplus was mainly because of cash withdrawn from banks to pay taxes, putting stress on lendable funds of banks,” Bhuvan Dahal, an executive member of Nepal Bankers Association, told Republica.

The fall in the deposit base of BFIs even after a hike of as high as 8 percent in saving rates has unnerved bankers. While the growth in the deposit base of banks has fallen, lending growth is still in an upward trend.  

The continuous rise in treasury surplus of the government has also dashed the hopes of bankers that the rise in development spending in third and fourth quarters of the fiscal year will more pump money into the banking channel. 

The government has a treasury surplus of nearly Rs 255 billion as of last week, up from nearly Rs 185 billion in mid-April, according to the Nepal Rastra Bank. Had the government's development spending increased, the treasury surplus figure would have gone down. Treasury surplus is increasing mainly due to growth in revenue collection and weak spending capacity of the government.

Dahal, who is also the CEO of Sanima Bank Ltd, suggested that the central bank provide refinancing facility to banks so that lending toward productive sector goes up and banks have some lendable funds. 

As banks have a limited margin to lend amid slowdown in deposit growth and rise in loan flow, they have been trying to attract depositors by offering up to 8 percent interest rate on saving products and 12 percent on fixed deposits.

The credit to core-capital-cum-deposit (CCD) ratio of many banks is approaching the 80 percent ceiling again, even after a regulatory relaxation on calculating such ratio. This has crippled their lending capacity. While the NRB offered some relaxation through the mid-term review of the monetary policy in calculating the CCD ratio, they have not managed to add much fresh deposits so far. 

The relaxation offered by the NRB through the mid-term review of the monetary policy allows banks to float loans without adding deposits.  The central bank allowed the banks 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 new deposits.  

Out of 20 commercial banks, which have published their financial results for the third quarter of the current fiscal year, eight have their CCD ratio higher than 75 percent, indicating that they have very limited space to lend. Similarly, nine banks have their CCD ratio between 70 to 75 percent, while three commercial banks are in a very comfortable position to lend with their CCD ratio between 65 percent and 70 percent.

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