KATHMANDU, April 27: Grappled with shortage of lendable funds, bank and financial institutions (BFIs) have tweaked their credit expansion strategy.
Amid accusation that they went into aggressive lending in the first half of the current fiscal year 2016/17 that led to the breach of a regulatory limit, bankers have said that they would not disburse loans significantly until the government increases its spending and such cash flows into the banking system.
Until then, they say, there would not be incremental growth in lending. “Earlier, banks had adopted a strategy of expanding loans and credits, projecting that the government spending would go up as announced in the budget speech which came on time,” Anil
Keshary Shah, the president of Nepal Bankers Association (NBA), said. “However, our projection failed. There was growth in lending, but not in deposits. So, we have now taken a strategy to expand lending only after government spending increases and that money comes into banking system as deposits,” Shah, who is also the CEO of Mega Bank Ltd, said.
In recent months, BFIs have curtailed their lending due to slow deposit growth. Despite offering interest rates on fixed deposit of up to 13 percent, there has not been much expansion in their deposit base.
Lending growth seen by BFIs after the mid-term review of the monetary policy is largely from the funds that the Nepal Rastra Bank (NRB) has allowed them to extend as loans without collecting new deposits.
NRB offered the relaxation to the BFIs through mid-term review of the monetary policy for calculation of the credit to core capital-cum-deposit (CCD) ratio which allowed them to float loans without adding deposits. The central bank allowed the bank to subtract 50 percent of productive sector loans from the CCD ratio until mid-July this year. This will allow BFIs to float loans worth 50 percent of their total loans in productive sector until mid-July.
Though the government spending pumps money into the banking system, slow pace of development expenditure has resulted into shortfall of lendable cash in BFIs. According to the NRB, more than Rs 200 billion of surplus fund is lying idle in the government treasury.
Bankers, however, are not much optimistic about the development expenditure increasing significantly in the last quarter.
“While there are expectations that the government will expedite spending in the last quarter and there will also be spending during the election, we are not going to expand lending based on these expectations,” said Shah.