Banks likely to face credit crunch again this fiscal

Kathmandu, November 15

Loan expansion of commercial banks is expected to be sluggish throughout the year as a majority of banks have expanded loans up to the permissible credit to core capital cum deposit (CCD) ratio of 80 per cent in the first quarter of this fiscal.

According to the first quarter financial statements published by the commercial banks, dozens of banks have crossed the CCD level of 77 per cent, which means they are not in a position to expand loans because of possible chances of withdrawal of deposits and as Nepal Rastra Bank (NRB) has started monitoring the CCD of the banks every week.

Of the total 28 banks in operation, three banks have been maintaining CCD below 70 per cent. These

include Standard Chartered Bank, government-owned Rastriya Banijya Bank and Nepal Bank, meaning they have high appetite for lending.

Loan expansion has slowed down in the first quarter of this fiscal compared to the same period of the

previous fiscal. Loan expansion and deposit collection increased by four per cent and 2.06 per cent, respectively, in the first quarter of this fiscal compared to six per cent and four per cent of the corresponding period of the previous fiscal.

Bottom five


CCD ratio











Top five


CCD ratio

Standard Chartered


Rastriya Banijya




Nepal Credit & Commerce




Commercial banks have mobilised Rs 65 billion in loans in the first quarter against deposit collection of Rs 43 billion. Banks are willing to expand loans to maintain the profit they used to make in previous years after the rise in paid-up

capital of the banks. However, lack of adequate deposit sources has been hampering their efforts to move forward.

Banks seem more cautious towards loan expansion as the aggressive lending of the last fiscal pushed them towards the crisis of loanable funds and almost all the banks had breached the permissible CCD level allowed by the central bank as the deposit mobilisation remained sluggish.

Thereafter, the central bank, during half-yearly review of the monetary policy last year, had introduced a provision allowing banks to not factor 50 per cent of the productive sector loans while calculating CCD. That provision was extended to the first quarter of this fiscal. Along with the special provision ending, banks have again come under pressure to maintain their CCD ratio.

Sluggish deposit collection forced banks to raise the interest rate on deposits, which raised the ‘cost of funds’ of the banks and adversely affected the profit in the first quarter. Average CCD ratio of the commercial banks is around 76 per cent.

After the profit of the banks was adversely affected due to high cost for deposit mobilisation, banks are no more encouraged to expand loans, which could affect the private sector lending growth target of 20 per cent set by the monetary policy of this fiscal.