Majority of banks halt credit disbursement

At a time when the government has been setting an annual target of seven to eight per cent growth for the next decade, banks and financial institutions are passing through a perennial crisis of loanable funds and a majority of the banks have halted loan disbursement owing to the slow deposit growth.

Out of the 28 commercial banks in operation, around 20 banks have stopped dealing with fresh loan seekers. Even borrowers who had received commitment of loans from the banks have not been able to obtain loans.

“Only a small chunk of the committed loans are being disbursed by the banks due to slow deposit growth,” as per bankers.

According to Nepal Bankers’ Association, commercial banks collected deposits (local currency) worth Rs 488 billion in the first seven months of this fiscal, whereas credit flow stood at Rs 569 billion in the review period.

Banks can mobilise loans of up to 80 per cent of the sum of deposit and core capital.

Apart from a few banks, lending capacity of a majority of the banks has saturated as they are on the verge of the permissible CCD (credit to core capital cum deposit) level.

Bankers have said that the low deposit mobilisation is due to slow development expenditure, slackness in remittance growth, and slow growth in exports.

Nepal Rastra Bank Governor Chiranjibi Nepal said that government’s treasury surplus stands at Rs 285 billion and the problem faced by banking sector will end after government’s spending gathers pace.

The private sector has said that the unpredictable interest rate and crisis of loanable funds in banks have adversely affected the business climate in the country.

The Ministry of Finance (MoF) has urged the banks to bring the funds that are parked in foreign banks into the country to ease the current challenge.

The MoF has also urged the central bank to develop a legal framework to allow Nepali banks to bring line of credit facility from foreign banks to address the perennial challenge of loanable fund crisis and ensure adequate credit flow in the economy to move towards a higher growth trajectory.

However, bankers have said that they have yet to fathom the MoF’s plan of bringing capital from foreign banks in a concrete manner.