Bankers are panicked at the possibility of huge withdrawal of deposits from the system over the next few days for income tax payment and repatriation of profit by Ncell.
KATHMANDU, Jan 11: Most of the commercial banks have stopped issuing new loans as they are running out of funds for lending. Except for three government-owned banks and a couple of commercial banks, most of the 'A' class lenders are turning away borrowers who approach them for loans.
The halt in loan disbursement by banks is due to the shortage of lendable funds in the banking system resulting from the mismatch of growths in deposits and credit. These banks have decided to stop extending fresh credits as they have reached the lending limit set by the Nepal Rastra Bank (NRB).
According to the prudential lending limit, a bank cannot extend more than 80 percent of its core capital cum deposit (CCD). Since most of the banks are either already close to 80 percent threshold or are nearing the saturation level, they have decided to stop lending until the deposit base increases.
The average CCD ratio of commercial banks (except for government-owned three banks) has reached 77 percent as of January 5, according to Nepal Bankers Association (NBA). As more deposits could have been withdrawn over the last few days as the second quarter deadline for income tax payment looms, the crunch of the lendable fund has worsened in the banks, prompting them to halt the fresh loans.
Sanima Bank Ltd is one of the commercial banks which decided to stop fresh lending. “Except for some urgent cases, we have decided to stop issuing credits from yesterday [Tuesday] due to the shortage of loanable fund,” said Bhuvan Dahal, the CEO of Sanima Bank Ltd. “We will resume lending once the deposit base increases,” he added.
Similar is the situation of Prabhu Bank Ltd. “We have put on hold new loan applications. We will make decision on the applications from Magh [mid-February] when the CCD situation eases,” said Ashok Sherchan, the CEO of Prabhu Bank Ltd.
Bankers are panicked at the possibility of huge withdrawal of deposits from the system over the next few days for income tax payment and repatriation of profit by Ncell. According to an estimate, taxpayers will withdraw deposits worth over Rs 60 billion from BFIs to pay income taxes by the end of Paush (January 14) while Ncell has already got the approval from the NRB to repatriate Rs 7.6 billion in dividend from Nepal.
“Banks have exercised more caution in increasing their loans amid slowdown in the deposit growth,” said Gyanendra Dhungana, NBA president, urging the government and the central bank to provide them 'a way-out'. The government has taken initiative as suggested by the bankers to address the lendable fund crunch. A committee formed by the Ministry of Finance is exploring possible solutions to the crunch.
However, NRB officials say that the shortage of lendable fund in banks is of their own making. “Had the banks shown more discipline, the problem would not have come,” said Nara Bahadur Thapa, an executive director at the NRB. “They became aggressive in their lending approach despite knowing that the sources of deposit like remittances, balance of payment and development expenditures were slowing down,” said Thapa, who is also the head of the NRB's Research Department. “Moral hazard is all what we can see in banks as they expect the government and the NRB to clear the mess that they have created,” he added.