KATHMANDU, Jan 24: At a time when bankers are hoping that the Nepal Rastra Bank (NRB) will provide them a relaxation on credit to core-capital-cum-deposit (C-CD) ratio, the central bank has indicated that such prudential lending limit is not going to be tweaked to address the current liquidity problem being faced by bank and financial institutions (BFIs).
Some banks have already curtailed their lending as their CCD ratio is nearing the 80 percent limit. Even banks, which are at a comfortable position, are wary of increasing deposit withdrawals as other banks are offering interest rates of as high as 13 percent to meet the shortfall of lendable fund. Due to mismatch between deposit mobilization and loan disbursement, banks are seeing their CCD ratio inch closer to the 80 percent limit.
Similar to the last fiscal year, when the BFIs had faced the same problem, bankers are expecting relaxation on CCD ratio from the central bank. However, the central bank officials rule out any flexibility this time around.
In its 'Current Macroeconomic and Financial Situation of Nepal (Based on Five Months' Data of 2017/18), the central bank has hinted that it would not consider such temporary relief. Rather, the central bank has claimed that that the 'recent hiccups' are lately being stabilized on account of NRB's firm stance on the CCD ratio.
“Domestic financial market conditions have remained orderly, albeit relatively tighter, despite some hiccups seen in interest rates recently,” read the periodic report of the NRB. “Such hiccups are being stabilized on account of NRB's firm stance on the CCD ratio and the proactive use of open market operations along with liquidity injection under the policy corridor,” it added.
Earlier in the last fiscal year, the NRB, through its mid-term review of the monetary policy, had allowed banks to deduct 50 percent of loans they extended to the productive sector, allowing them to lend a portion of fund even without collecting fresh deposits. The regulatory relief provided to the BFIs in the wake of shortage of lendable fund, however, was withdrawn later on.
Earlier, their hope of getting surplus fund from the state coffer was dashed by a committee formed by the finance ministry which concluded that such arrangement was not immediately possible due to fiscal laws and rules. Now, as the central bank starts preparation for the review of monetary policy, bankers are now looking at the central bank for relaxation.
“The committee formed by the finance ministry said that the law can be amended to open account of the government in commercial banks so that surplus fund of government treasury is channeled from banks,” Gyanendra Dhungana, president of Nepal Bankers' Association, told Republica. “As this arrangement that can be made in the next fiscal year only, we hope the central bank would provide us relief on CCD calculation formula like it did last year,” he added.
Such temporary relief, however, had drawn concern from International Monetary Fund (IMF) which had said the that temporary regulatory relief granted by the central bank would allow for continued rapid credit growth, raising macro-financial risks.
The central bank seems to be in no mood to offer any temporary relief on its CCD ratio rule this time around as indicated in its monthly report. “The strict adherence to the CCD ratio, which caps overall credit risk and acts as the nominal anchor of financial stability, will help restore balance between credit and deposit growth,” the report stated, adding that the expected pick up in government spending is likely to ameliorate the financial market condition in the days ahead.