Half a year has come to pass, yet banks are facing problems disposing the surplus funds profitably due to dwindling demand for credit.
The difficulty facing banks in disposing liquid funds that began in the beginning of the current fiscal year has deepened six months down the line. The commercial banks’ credit to deposit ratio has tumbled to 73 per cent, which had remained above 76 per cent till June, 2013.
The total loans floated by the banks has reached Rs 802 billion as of first week of January, while total deposit collection stands at Rs 1,093 billion, according to Nepal Bankers’ Association (NBA) statistics. Even after maintaining regulatory liquidity requirement of 20 per cent of total deposits, banks have Rs 73 billion as surplus loanable funds sitting idle without bringing in much income.
The low credit expansion yet surplus liquidity has become the biggest problem in the financial sector at present. In the past six months, deposits have grown by Rs 109 billion, while loan disbursement has increased by Rs 60 billion.
“The credit demand at present is not encouraging. While deposit is increasing, there aren’t many viable and quality projects to finance,” pointed out vice president of NBA Upendra Poudyal.
Since the beginning of the fiscal year, lending expansion of the banks has been sluggish. The accelerated deposit coupled with lagging lending has even pushed the short-term interest rates to below one per cent. The 91-day treasury bills are being traded at 0.136 per cent and interbank lending rate has also remained at 0.2 per cent at present. “The income from alternative investment has also become marginal due to such plunge in the treasury and interbank rate,” informed Poudyal.
Lack of credit demand is a glaring signal that economic activities in the country remain stagnated. Earlier, the successful conclusion of the second Constituent Assembly election was expected to stimulate banking activities. However, even after the election, loans grew by only Rs 15 billion, while deposits have gone up by double the amount. “Banks have already lowered interest rates in lending, but the effect is yet to be felt. Though decline in lending rate might be desirable for consumers, lowered deposit rate hurts them,” pointed out Poudyal, who is also the CEO of NMB Bank.
The prolonged liquidity even compelled the central bank to use its Open Market Operation worth Rs 126.5 billion. Since September, NRB has held reverse repo worth Rs 107 billion. Likewise, it had held an outright purchase auction for securities worth Rs 8.5 billion to mop up excess liquidity and issued development bonds worth Rs 10 billion. Excess money in the financial system not only puts extra pressure on price rise but also creates greater risk of capital flight.
source: the himalayan times,17 jan 2014
LINK
The difficulty facing banks in disposing liquid funds that began in the beginning of the current fiscal year has deepened six months down the line. The commercial banks’ credit to deposit ratio has tumbled to 73 per cent, which had remained above 76 per cent till June, 2013.
The total loans floated by the banks has reached Rs 802 billion as of first week of January, while total deposit collection stands at Rs 1,093 billion, according to Nepal Bankers’ Association (NBA) statistics. Even after maintaining regulatory liquidity requirement of 20 per cent of total deposits, banks have Rs 73 billion as surplus loanable funds sitting idle without bringing in much income.
The low credit expansion yet surplus liquidity has become the biggest problem in the financial sector at present. In the past six months, deposits have grown by Rs 109 billion, while loan disbursement has increased by Rs 60 billion.
“The credit demand at present is not encouraging. While deposit is increasing, there aren’t many viable and quality projects to finance,” pointed out vice president of NBA Upendra Poudyal.
Since the beginning of the fiscal year, lending expansion of the banks has been sluggish. The accelerated deposit coupled with lagging lending has even pushed the short-term interest rates to below one per cent. The 91-day treasury bills are being traded at 0.136 per cent and interbank lending rate has also remained at 0.2 per cent at present. “The income from alternative investment has also become marginal due to such plunge in the treasury and interbank rate,” informed Poudyal.
Lack of credit demand is a glaring signal that economic activities in the country remain stagnated. Earlier, the successful conclusion of the second Constituent Assembly election was expected to stimulate banking activities. However, even after the election, loans grew by only Rs 15 billion, while deposits have gone up by double the amount. “Banks have already lowered interest rates in lending, but the effect is yet to be felt. Though decline in lending rate might be desirable for consumers, lowered deposit rate hurts them,” pointed out Poudyal, who is also the CEO of NMB Bank.
The prolonged liquidity even compelled the central bank to use its Open Market Operation worth Rs 126.5 billion. Since September, NRB has held reverse repo worth Rs 107 billion. Likewise, it had held an outright purchase auction for securities worth Rs 8.5 billion to mop up excess liquidity and issued development bonds worth Rs 10 billion. Excess money in the financial system not only puts extra pressure on price rise but also creates greater risk of capital flight.
source: the himalayan times,17 jan 2014
LINK
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