Lending outpaces deposit mobilization

Published On: June 25, 2016 01:58 AM NPT By: Republica  | @RepublicaNepal

Commercial banks float Rs 175 billion in loans and advances, collect Rs 118 billion in deposits in six months

KATHMANDU, June 25:After a long slowdown, loan mobilization by banks is finally moving upward in recent months.

Data compiled by Nepal Bankers Association (NBA) shows credit flow of commercial banks outpaced deposit mobilization in the first six months of 2016. Statistics shows commercial banks added an additional Rs 118 billion in deposits between January 1 and June 10, while they floated Rs 175 billion worth of loans in the same period. This means loan mobilization was Rs 57 billion higher than deposit collection in the review period.

Total deposit mobilization of commercial banks stands at Rs 1,655 billion, while lending was at Rs 1,327 billion till June 10.

Rise in lending has ended the mismatch in deposit and loan mobilization in the banking system which has caused liquidity surplus. While banks were left without any credit demands due to investors' reluctance to borrow, they have been overwhelmed with the flow of deposits. Such liquidity surplus had even pushed interest rates down to ultra-low levels.

Bankers attribute the slowdown in lending to last year's devastating earthquakes, Tarai turmoil and subsequent economic blockade by India which took a toll on economic activities, prompting investors to hold their investments and discouraging them from borrowing.

However, bankers say that they are now seeing an improvement in the situation as demands for loans have started picking up in recent months. "Many things had stopped after the earthquake. Businesses and industries had come to a grinding halt due to Tarai turmoil and economic blockade.

Now the situation has improved," Upendra Poudyal, president of NBA, said. "Factories have resumed operation, cross border trading has normalized, companies are back to their businesses, and so has the banks' investment. Lending is on an increasing trend while deposit is comparatively going down due to slow growth in remittance flow."

The rise in demands for loans is also reflected in the interest rates of commercial banks. Banks are now attracting depositors offering as much as 7 percent interest on fixed deposit which was as low as 3 percent few months ago.

However, some bankers say that it is too early to say whether the rise in the lending is a short-term phenomenon or a long-term trend.

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