KATHMANDU, Nov 19: Despite reducing their base interest rate to as low as 7.02 percent, commercial banks have failed to cash in the benefits of raising their businesses citing a surge in their non-performing loans (NPLs) amid ongoing economic slowdown.
According to the financial status unveiled by commercial banks, the ratio of their NPLs stood at four percent on an average, while a number of banks have the ratio as high as 5.84 percent. “At a time when the demand for loans is already too low, banks have been taking cautious measures to issue loans with their surging NPLs,” said a banker on condition of anonymity. “The loan recovery however has improved by nominal rate in the recent days compared to the last few months.”
A few months ago, the International Monetary Fund suggested the NRB to increase vigilance on the credit issuance by banks due to their soaring NPLs. The international lending organization had even recommended the central bank to carry out an in-depth study of the quality of credits issued by a number of big banks.
Lending slows as banks focus on recovery of loans at fiscal yea...
Based on the period of the overdue of the loans issued by the banks, the NRB has categorized NPLs as sub-standard, doubtful and bad loans. The substandard loans are those loans whose interest and principal payments are due up to six months. The doubtful loans are those in which payments remain due for six months to one year, while the overdue period is more than one year in case of bad loans.
For the substandard loans, the BFIs have to maintain 25 percent of the amount in provisioning. In case of doubtful loans, the provisioning amount is 50 percent, while for the bad debts; banks need to maintain a cent percent amount in provisioning. According to bankers, an increase in provisioning takes down the profits of the banks.
The statistics maintained by Nepal Rastra Bank (NRB) shows that the banks collected an additional Rs 1 billion in deposits on a single day last Wednesday, taking the total deposit collection to Rs 5.891 trillion. However, their loan portfolio declined by a similar amount to Rs 4.673 trillion on the same day.
With the low issuance of loans, the credit-deposit ratio of the banks has come down to as low as 78.32 percent. The figure is far low compared to the threshold of 90 percent mandated by the NRB.
As banks have excess liquidity, NRB on Sunday announced to mop additional Rs 50 billion from the market. In the first four months of the current fiscal year, the banks parked a total of Rs 10.775 trillion in the deposit facility provided by the central bank. The amount was more than double of Rs 4.773 trillion that the banks deposited with the central bank in the entire period of the last fiscal year.
Due to the excess liquidity, the government’s cost of borrowings has also come down, as the interest rate on the government's internal borrowings has come down to four-year low at 3.95 percent. Likewise, the interest rate on fixed deposits of the banks has also come down to as low as 5.53 percent per annum.
