Nepal | July 20, 2019

Ncell profit repatriation to affect banks

Pushpa Raj Acharya

Kathmandu, December 28

Following the Supreme Court’s clearance to repatriate the profits earned by the telecommunication service provider Ncell, Nepali banks in which the company has deposited funds have raised the interest rate on fixed deposits and other deposit schemes to maintain the credit to core capital cum deposit (CCD) ratio.

Due to lack of deposits, banks were already not in a position to disburse or commit to big loan amounts as the banks have already issued loans up to the permissible CCD level. Average CCD ratio of the 28 commercial banks in operation is 77 per cent and if the figure of government-owned Rastriya Banijya Bank (RBB) is removed from that calculation, the average CCD level of the banking industry will stand at around 79 per cent. This means banks have already lent to the optimum level and if a significant amount is withdrawn from the concerned banks, the CCD level will easily cross the permissible 80 per cent.

“Banks were already deferring loan disbursement schedule even for the already committed loans keeping in mind the income tax (40 per cent of the annual tax amount) submission deadline of mid-January. So, Ncell’s profit repatriation will certainly choke the banks,” said Bhuvan Kumar Dahal, CEO of Sanima Bank. Bankers say that around Rs 35 billion to Rs 40 billion will be withdrawn from the banking system for filing income tax returns by mid-January.

Apprehensive about this situation, bankers today met with high-ranking officials of Nepal Rastra Bank and urged for a stimulus from the central bank like refinancing packages to fulfil the demand of credit in the economy. On the other hand, income of the banks will be hit hard as their interest-income will go down as they are not able to expand loans.

“The government collects the revenue and literally does nothing with it. Instead of just sitting on top of the collected amount, which has been the case for past couple of years, Ministry of Finance could allow NRB to deposit the funds allocated for the local level government and reconstruction fund to the commercial banks as a short-term remedy,” opined Dahal.

Sudesh Khaling, CEO of Laxmi Bank, said that though only a few banks have deposits of Ncell, when the amount is withdrawn, it will have an adverse impact on the whole banking industry as the banks will start competing on deposit rates to maintain CCD ratio. “We have been disbursing loans only for micro and small medium enterprises (MSMEs) right now,” he said.

After the apex court’s verdict in favour of Ncell on Sunday, the latter has approached the central bank for profit repatriation. According to NRB officials, the telecommunication service provider has set aside Rs 72 billion for profit repatriation for the period between 2012-13 to 2015-16. Nabil Bank, Standard Chartered Bank Nepal, SBI Bank Nepal, Nepal Investment Bank and Everest Bank are the banks that have deposits of Ncell.

Anjan Shrestha, chairperson of the Industry Committee of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that the projects initiated in the meantime have been affected due to lack of funds as the banks are not disbursing loans on time.

“High interest rate on credit and delay in disbursement of loans will escalate the cost of projects and it is difficult to predict the cost and delay faced by the ongoing projects,” Shrestha said, adding, “On the other hand, businesses will also be affected as they will not be able to avail loan facility from banks and financial institutions.”

A version of this article appears in print on December 29, 2017 of The Himalayan Times.

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