In the last one week alone, 31 commercial banks witnessed deposits growing by Rs 14 billion. In the same period, lending grew by Rs five billion, according to Nepal Bankers’ Association statistics. Deposit collection of banks has reached Rs 1042 billion and they have floated loans worth Rs 767 billion till the end of September. Even after maintaining mandatory liquidity reserve of 20 per cent of deposits, commercial banks still have disposable funds worth Rs 67 billion.
“With Dashain just round the corner, increased incoming remittance from workers abroad has swollen the deposits at financial institutions,” informed deputy CEO of Sanima Bank Bhuvan Dahal.
Since a month preceding Dashain — which falls in mid-October — Nepali households start to make purchases ranging from small daily items such as clothes and accessories to properties and large assets. Migrant workers and other Nepalis living abroad send money home during this time that contributes in increased deposits at financial institutions. Last fiscal year also, Nepal had received remittance worth Rs 63 billion during the two months from mid-September to mid-October.
“Deposit growth last week could have been even higher but the initial public offerings of Sanima Mai Hydropower and Kalika Microcredit Development Bank that collected about Rs eight billion also led to substantial deposit withdrawals,” pointed out Dahal.
Though deposit growth is desirable for banks, in the current situation of low credit demand, liquidity surplus has added further trouble for the banks. At present, banks have lent less than 74 per cent of their deposits.
The central bank’s measures to tackle the liquidity surplus are also seemingly ineffective. The fourth round of reverse repo held by Nepal Rastra Bank (NRB) witnessed a contraction in subscription rate and the rates offered by financial institutions.
Financial institutions had bid for securities worth Rs 13 billion on last Wednesday’s reverse repo held by NRB worth Rs 10 billion at 0.054 per cent rate. Two weeks back, NRB had received bids for securities worth Rs 21 billion for the reverse repo held for securities worth Rs 10 billion at 0.03 per cent rate from 21 financial institutions.
The seven-day reverse repo rates are pretty much low so even if a financial institution can lend Rs one billion to the central bank, it will only receive a little more than Rs 10,000 in return.
Excessively surplus liquidity not only brings down an individual bank’s income but it subsequently reduces interest rate.
Lower interest rate makes containing inflation difficult for the monetary authority. On the other hand, it also increases the risk of capital flight in a country like Nepal. Moreover, lack of credit demand reflects the private sector’s lack of confidence in the country’s economy.
Picture above:Financial scenario. Figures in Rs billion. Source: Nepal Bankers’ Association
source:the himalayan times,6 Oct 2013
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