August 4, 2016 01:20 AM NPT
KATHMANDU, Aug 4: Commercial banks added a total of Rs 257 billion in loans in the first seven months of 2015/2016, while they mobilized an additional Rs 250 billion in deposits.
Though the banks were flooded with deposits, they have not been able to expand their credit in accordance to the rise in their deposit volume. Total deposit and loan mobilization of 28 commercial banks stood at Rs 1,787 billion and Rs 1,409 billion, respectively, as of last Friday, data of Nepal Bankers Association (NBA) shows.
Also, the government failure to increase capital spending has left the banks with only fewer investment opportunities. This, along with rise in deposits, fuelled by the remittances, has kept the banking industry awash with liquidity.
Last year's devastating earthquakes, Tarai turmoil and unofficial economic blockade imposed by India were the factors attributed by bankers to lack of investors' interest to expand their business even when the interest rates were plunging.
With the economy limping back to normalcy, bankers say their credit growth is also picking up in recent months. The commercial banks floated an additional Rs 23 billion of loans in just two weeks, Rs 2 billion less than the deposits they mobilized in the same period.
"Loan flow has been rising for the past couple of months. There has been growth in almost every sector," Bhuvan Dahal, CEO of Sanima Bank Ltd, said.
However, there are some bankers who take sudden growth in lending with caution, saying that such rise could be due to sanction of credits that were halted during the Tarai turmoil and economic blockade.
"Most of the manufacturing industries and factories were operating below their capacity during the blockade. Their capacity utilization was as low as 20 percent. Credit flow in the construction sector, including hydropower sector, was halted. With the blockade coming to an end, their capacity utilization started to increase, calling for more credits," Kishore Maharjan, CEO of Civil Bank Ltd, said. “This is why loan figures of banks have gone up suddenly instead of new demands from investors to start new projects."
Another reason for the rise in loan figure is the appreciation of US dollar vis-à-vis Nepali currency. “The value of US dollar has gone up almost 7 to 8 percent which means the cost of projects or imports have also gone up accordingly, requiring borrowers to get more loans," added Maharjan.
While there has been growth in lending, banks have not rushed to increase their interest rates so far. According to Maharjan, interest rates could have gone up if growth in lending was really an upward trend rather than a short-term phenomenon. "Rates will go up if borrowing really takes an upward trend," he added.