Banks deposit growth rate not encouraging

HIMALAYAN NEWS SERVICE

KATHMANDU: Despite the signs of easing liquidity situation, the first month of the current fiscal year the commercial banks did not even witness deposit growth of Rs 1 billion. The deposit mobilisation of commercial banks has increased by Rs 740 million in the first month of the current fiscal year, according to a report released by Nepal Rastra Bank.

The deposits have increased to approximately Rs 688 billion in one month from Rs 687 of the last fiscal year end.

However, it is 0.29 per cent increment in comparison to the decline of 1.09 per cent in the first month of the last fiscal year’s same period. Last fiscal year, the deposits in the commercial banks grew by only 10 per cent while in the year before deposits have grown by 12.9 per cent, according to the unaudited fourth quarter financial reports of the commercial bank for the last fiscal year.

The deposit growth rate had slowed down since last two fiscal years due to deepening liquidity crisis in the banking sector fuelled by delayed budgets.

In the fiscal year 2008-09 deposits with commercial banks had surged by 32.25 per cent.

The slowing growth rate of deposits with the commercial bank was evident as last

year deposits grew by Rs 57

billion opposed to expansion

of deposit base of the commercial banks by Rs 72 billion a year before.

The commercial banks witnessed inter-bank deposits surge by nine per cent while deposits of non government corporations have also increased by about six per cent, the report revealed, adding that the deposits made by individual depositors have also gone up by 3.85 per cent. However, the institutional depositors’ deposits saw the decline of 7.7 per cent.

The tight liquidity situation with the commercial banks have reflected in escalating interest rate but as the deposits had started to flow in, the interest has also started to ease.

The rising deposit in the commercial banks that eased the liquidity situation in the domestic financial sector has even brought down the inter-bank rate lately.

The inter bank lending rate that was riding as high as 12 per cent few months ago has come to approach around one per cent in the recent times signaling the waning need for financial institutions to borrow from one another.

Even repo amount has gone down to Rs 728 million in the first month as the banks have enough deposits. The average repo conducted by the central bank to inject liquidity in the financial sector amounted to Rs 7 billion. Even by mid-July, the Nepal Rastra Bank had injected liquidity of Rs 10 billion by purchasing securities from the financial institutions.

The current fiscal year’s

timely budget could be attributed for the flow of deposits to the financial institutions. Last year’s delay in budget release stalled funds from government coffer to the market reducing funds with the banks in the first six months.

The incidences of failure of finance companies and development banks — due to bad corporate governance — have caused large number of depositors to withdraw from the financial institutions and deposit in trusted commercial banks.