Nepal | April 23, 2019

Daily deposit flow has tripled since April 25 temblor

With credit growth stagnant, deposit and credit rates may come down hitting economy

Rupak D Sharma

KATHMANDU: Per day deposit flow at commercial banks has gone up by over three times since the devastating earthquake of April 25, as Nepalis working abroad rushed to send home money to help their families in the wake of disaster.

Since the earthquake struck the country, commercial banks have been receiving deposits to the tune of Rs 1.54 billion per day, as against around Rs 443 million prior to the quake, show the latest data of the Nepal Bankers’ Association.

“Deposit level has gone up largely because of greater flow of workers’ remittance. Also, rise in financial aid flow from abroad and transfer of fund from homes to banks — due to fear of losing it in the aftermath of the disaster — made some contribution in raising deposits,” Sanima Bank CEO Bhuvan Kumar Dahal told THT.

Daily remittance inflow reached as much as US$50 million (approximately Rs five billion) immediately after the earthquake, according to Nepal Rastra Bank, the central monetary authority.

“Even now, the country is receiving remittance of around $20 million per day through formal channel. And more seems to be flowing into the country from illegal channels,” a senior NRB official said on condition of anonymity. Average daily remittance flow from formal channel stood at around Rs 1.56 billion prior to the quake. With the sudden gush of workers’ remittance, deposits in commercial banks had surged to a whopping Rs 1.40 trillion till June 12, show the NBA data. Of this amount, Rs 74 billion had found its way into the banks’ coffers after the April 25 earthquake.

“However, we don’t think deposit level will continue to rise in this manner, as many Nepalis working abroad may have resorted to borrowing to send money to family members affected by the quake. So, chances of remittance inflow decelerating in the coming days cannot be ruled out,” said the NRB official.

While deposit level at commercial banks — which hold around 86 per cent of the total deposits of the banking sector — is growing day by day, lending has remained almost stagnant. Since the quake, credit of commercial banks has expanded by mere Rs 2 billion.

Surprisingly, total credit portfolio of commercial banks, which stood at Rs 1.09 trillion on May 15, shrunk to Rs 1.08 trillion on May 22 and remained at the same level for around three weeks till June 12.

“This shows borrowers are repaying the credit but are not acquiring fresh loans due to fragile business and investment climate,” said Dahal. If the current trend of rising deposits and sluggish credit outflow continues, deposit and lending rates will fall within a month, according to Dahal.

This will not bode well for the economy, as low deposit rates will prompt depositors to look for risky investment avenues, while low credit rates will encourage borrowers to acquire loans from domestic institutions and park the funds in banking institutions of countries such as India where deposit rates are relatively higher or invest in destinations where business climate is better.

“In this regard, the government and central bank should make use of debt and money market instruments to mop up excess liquidity,” said Dahal. Excess liquidity in the banking sector currently hovers around Rs 109 billion, according to NRB.


Follow The Himalayan Times on Twitter and Facebook

Recommended Stories: