Nepal | July 17, 2019

Bank deposits growing at almost half the rate of loan expansion

Himalayan News Service

Kathmandu, January 11

Bankers seem to have largely ignored the credit crunch situation of the last fiscal, as credit expansion of banks is almost double than deposit collection in the first five months of the current fiscal.

According to Nepal Bankers’ Association — the umbrella network of class ‘A’ financial institutions in the country — banks disbursed loans worth Rs 156 billion between mid-July and mid-December against deposit collection worth Rs 88 billion over the same period.

Growth this fiscal

Till mid-July Loan Rs 1,721bn
Deposit Rs 2,001bn
Till mid-August Loan Rs 1,734bn
Deposit Rs 2,001bn
Till mid-September Loan Rs 1,771bn
Deposit Rs 2,032bn
Till mid-October Loan Rs 1,807bn
Deposit Rs 2,045bn
Till mid-November Loan Rs 1,837bn
Deposit Rs 2,064bn
Till mid-December Loan Rs 1,877bn
Deposit Rs 2,089bn

Consequently, the average credit to core capital plus deposit (CCD) ratio of banks hovered around 78.24 per cent as of mid-December, as banks had mobilised deposits worth Rs 2,089 billion and loans worth Rs 1,877 billion by that period.

The CCD of the banks is set to overshoot from mid-January (first half of the fiscal), when the government collects 40 per cent of annual estimated income tax. While around Rs 40 billion will be withdrawn to file income tax, additional Rs 8 billion will be withdrawn in the immediate future, as the central bank has approved profit repatriation of Ncell, a private telecommunication service provider.

“Banks have a cushion of around Rs 45 billion to meet the permissible CCD ratio of 80 per cent,” Shovendev Pant, CEO of Bank of Kathmandu, told THT.

Nepal Rastra Bank — the central regulatory and monetary authority — has time and again objected to banks’ aggressive lending policy when deposit mobilisation is sluggish. NRB Governor Chiranjibi Nepal has urged the banks to create balance between deposit collection and loan disbursement. “Banks should mobilise loans in accordance with their deposit collection,” Governor Nepal asserted while talking to THT.

He added that bankers were inviting a looming crisis of credit crunch to earn quick profits, and that they were not proactive in attracting more deposits. He warned that the central bank would penalise banks that breached the CCD rules.

Bankers, however, claim that this is sound credit growth as per the demand of the economy.

“The monetary policy has envisioned 20 per cent credit growth to the private sector and there was around nine per cent credit growth in the first five months,” a banker said requesting anonymity. According to the banker, banks have floated loans more patiently this fiscal, but deposits grew by just 4.4 per cent in the review period.

Bankers criticised slow government expenditure and negative growth of remittances for sluggish deposit growth. Bankers say the issue of low deposit collection can be addressed if the government accelerates development works and provides refinancing packages to address this ‘short-term phenomenon’ of credit crunch.


A version of this article appears in print on January 12, 2018 of The Himalayan Times.

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