The amount of loans being floated by commercial banks is rising steadily, while deposit growth seems to be stabilising. Deposits have grown by 8.4 per cent since mid-July till February, while loans have gone up by almost 11 per cent, according to Nepal Bankers’ Association (NBA) statistics. Among all classes of financial institutions, commercial banks were the most haunted by piling deposits but low credit demand.
Total loans floated by class ‘A’ banks reached Rs 837 billion as of the end of February and
total deposit collection stood at Rs 1102 billion, according to NBA data. Even after maintaining regulatory liquidity requirement of 20 per cent of total deposits, the banks have Rs 45.04 billion as surplus loanable funds. The amount of such idle funds sitting at bank vaults without bringing much income stood at more than Rs 75 billion in mid-January — till six months of the fiscal year.
The lowered interest rates seem to have worked in favour of the banks. During the beginning of the fiscal year, average weighted lending rate charged by banks stood at 12.09 per cent which has come down to 11.37 per cent, according to Nepal Rastra Bank (NRB).
“The interest rate has come down to quite a lower level — that is below 10 per cent — which is also stimulating some credit demand,” pointed out vice president of NBA Upendra Poudyal.
Along with commercial banks, the lending and deposit growth rate of other financial institutions also seem to have become comfortable. The total lending by all classes of financial institutions including commercial banks, development banks and finance companies increased by 9.5 per cent, while deposit grew by 7.7 per cent till mid-February.
From October till January, the country’s economic activities did not take off due to the Constituent Assembly election and the subsequent formation of elected government. The lack of credit demand despite waning interest rates reflects lowered level of economic activities in the country.
The amount of capital expenditure undertaken by the government entities had remained alarmingly low till the first half of the fiscal year due to the election and formation of the new government. However, in the seventh month they have increased capital expenditure. By the first half, the government’s capital expenditure had remained at Rs 9.27 billion, which shot up to Rs 13.1 billion in a month, according to macro economic statistics.
Increased capital expenses lead to a flurry of economics activities as contractors start to hire workers, procure materials and also acquire loans to finish projects which leads to a chain reaction of additional economic activities.
source:the himalayan times,16 march 2014
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