Commercial banks lending aggressively despite facing liquidity crunch

Published On: September 28, 2021 07:10 PM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Sept 28: The commercial banks in the country issued loans to their clients almost four times the deposit collection last week despite facing a liquidity crunch in recent days.

According to the Nepal Bankers’ Association (NBA), the banks issued loans of Rs 31 billion in one week as of last Friday compared to their deposit collection of Rs 9 billion. With an increase in economic activities after a decline in the infection rate of the coronavirus, the demand for loans has increased by a notable rate, said the bankers.

The country’s financial market is currently under pressure to manage liquidity, which has been blamed largely on the implementation of the rule of credit-deposit (CD) ratio by the NRB. Through the monetary policy, NRB has replaced the provision of credit to core-capital plus deposit (CCD) ratio with a maximum limit of 85 percent by CD ratio with a ceiling at 90 percent.  

The fall in liquidity adequacy has also been attributed to the very low expenditure by the government due to the financial shutdown for around a week after the government was unable to endorse the budget on time. Showing a pressure on the loanable fund, banks have started raising the interest rates on both deposits and loans.

In the first 10 weeks of the current fiscal year, commercial banks have collected a total deposit of Rs 418 billion while they have lent Rs 390.03 billion, according to the NBA. 


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