As economic activities resumed its normal pace following a stalemate during the election, lending by banks seems to be a bit stimulated.
In the week following the election results, loans floated by the 31 commercial banks have gone up by about Rs five billion. The total loans floated has reached Rs 793 billion as of last Friday, according to Nepal Bankers’ Association statistics. By the end of the election week, loan expansion stood at Rs 789 billion.
However, there is still a doubt whether last week’s increment is a flash in the pan or sustainable.The low rate of credit flow has been bugging Nepali banks since quite some time. Since the beginning of the fiscal year, lending expansion of banks has been sluggish. Lending increased at a rate of two per cent per week on average in the past five months.
“Loans seem to have gone up last week because loans that were processed before the elections got the funds released,” pointed out deputy CEO of Sanima Bank Bhuvan Dahal. “But the demand for new loans is not exciting, as most entrepreneurs are waiting for a clear political direction,” he added.
Though in the last one week alone, deposits at commercial banks declined by Rs two billion, they are still fraught with the troubles of disposing the surplus funds in a profitable manner. The total deposits stood at Rs 1073 billion at the end of last Friday which was at Rs 1075 billion a week ago.
“Deposits that piled on in the banks during the election seem to have exited as activities have increased in the market,” pointed out Dahal.
Deposits are steadily being accumulated in banks while loans are not flying off the shelves. So banks are sitting on a pile of cash that are not yielding any return, at present. Even after maintaining regulatory liquidity requirement of 20 per cent of total deposits, banks still have funds worth Rs 64 billion that can be easily lent provided viable projects apply for a loan.
Due to excess liquidity with banks, the interbank lending rate has also come down to 0.2 per cent since July. Likewise, the treasury bills rate has also been below one per cent since July. In addition, the reverse repos conducted by the central bank to mop up excess liquidity are fetching an interest that is as low as 0.1 per cent for the bidding banks.
Prolonged excess liquidity is an indication that economic activities have become stagnant. Such surplus will make containing inflation difficult for the monetary authority and also increases the risk of capital flight in a country like Nepal.
source: the himalayan times,6 Dec 2013
LINK
In the week following the election results, loans floated by the 31 commercial banks have gone up by about Rs five billion. The total loans floated has reached Rs 793 billion as of last Friday, according to Nepal Bankers’ Association statistics. By the end of the election week, loan expansion stood at Rs 789 billion.
However, there is still a doubt whether last week’s increment is a flash in the pan or sustainable.The low rate of credit flow has been bugging Nepali banks since quite some time. Since the beginning of the fiscal year, lending expansion of banks has been sluggish. Lending increased at a rate of two per cent per week on average in the past five months.
“Loans seem to have gone up last week because loans that were processed before the elections got the funds released,” pointed out deputy CEO of Sanima Bank Bhuvan Dahal. “But the demand for new loans is not exciting, as most entrepreneurs are waiting for a clear political direction,” he added.
Though in the last one week alone, deposits at commercial banks declined by Rs two billion, they are still fraught with the troubles of disposing the surplus funds in a profitable manner. The total deposits stood at Rs 1073 billion at the end of last Friday which was at Rs 1075 billion a week ago.
“Deposits that piled on in the banks during the election seem to have exited as activities have increased in the market,” pointed out Dahal.
Deposits are steadily being accumulated in banks while loans are not flying off the shelves. So banks are sitting on a pile of cash that are not yielding any return, at present. Even after maintaining regulatory liquidity requirement of 20 per cent of total deposits, banks still have funds worth Rs 64 billion that can be easily lent provided viable projects apply for a loan.
Due to excess liquidity with banks, the interbank lending rate has also come down to 0.2 per cent since July. Likewise, the treasury bills rate has also been below one per cent since July. In addition, the reverse repos conducted by the central bank to mop up excess liquidity are fetching an interest that is as low as 0.1 per cent for the bidding banks.
Prolonged excess liquidity is an indication that economic activities have become stagnant. Such surplus will make containing inflation difficult for the monetary authority and also increases the risk of capital flight in a country like Nepal.
source: the himalayan times,6 Dec 2013
LINK
Comments
Post a Comment