EDITORIAL: Soaring profit

The banks have not met the targets of investment in such sectors as lending to productive sector and agriculture

The profit of commercial banks has been showing an ever-rising trend – by wide rates, which make any observers wide-eyed, all the more so in the past two years. During this period, their profit has soared from Rs.9.48 billion in the first half of the fiscal 2014-15 to Rs.21.48 billion in the first half of the current fiscal year 2016/17. All banks have earned high profit margins, some more than the others – six banks have made well over one billion rupees. Their profit in the second quarter of this fiscal year is also projected to show the same strong growth as they have expanded credit by 30 percent in the first half, as against the average lending growth of the last five years of 19 percent. The Nepal Rastra Bank has required commercial banks to increase their capital to Rs. 8 billion, indirectly encouraging them to merge together, bringing down the total number of commercial banks which now stand at 28.

It is reported that the commercial banks have neared their lending limits set by NRB at 80 percent of their core capital and deposits. NRB has rightly rejected their push for increasing their lending limit. In the first half of the fiscal, their lending stands at Rs.204 billion as against the deposit collection of Rs.155 billion during the same period. The present liquidity crunch of the banks is due to low capital spending of the government and a fall in remittance. They have also been seeking refinancing of Rs. 11 billion from the central bank, a facility which can be allowed up to 25 percent of their core capital. However, refinancing would not benefit them in the calculation of 80 percent lending limit of their core capital. In recent days, NRB has warned the commercial banks against too much investment in unproductive sectors and has also, for example, required them to submit the details of their monthly lending to it to monitor their lending pattern better.

But this kind of problem was experienced in the past too. But the central bank cannot escape blame by saying that from now on it will ensure strict monitoring. The five percent spread rule – the difference between what interest the banks pay their depositors and what they charge on their loans – has often been violated by the commercial banks, with the central bank virtually looking on. The rules once made must be strictly enforced, and the offenders should be punished, and if the penalties are not seen to be strong enough to deter the offenders in the future, they should be made more stringent. In this respect, the central bank has a lot to answer for and a lot of soul-searching to do. Making gestures and motions of activity will not be enough to make a real difference. Nepalese commercial banks are among the highest profit earners in the world, not only compared with other banks but other business ventures. This is despite the fact that economic activities have not gone up much after the major earthquakes and the trade blockade. The expansion of banking credit has not led to enterprise development and job creation in the economy. More than two thirds of the banking loans have gone into unproductive sectors, namely overdraft, margin lending, home loan, real estate, and hire purchase. But the banks have not met the targets of investment in such sectors as lending to productive sector and agriculture.

TIA’s health desk

The health desk at the Tribhuvan International Airport (TIA) is gearing up to provide added services after it received the required fund by the World Health Organization (WHO). For this purpose, the WHO is providing Rs. 3.5 million to the Epidemiology and Disease Control Division under the Department of Health. The devastating earthquake in April, 2015 had damaged the medical equipment meant for the TIA health desk. A thermal scanner camera focusing on the passengers’ foreheads was used to measure their body temperature. When the temperature is beyond the normal range the passengers are called to the desk for further medical tests.

The health desk had been set up at the TIA to check the outbreak of the Ebola virus in Africa which claimed the lives of thousands. It is high time that the health desk carried out its work efficiently. There are several reports of this desk being left unmanned as a result of which the screening for various communicable diseases of all the passengers has not been conducted. However, the TIA officials say that its health desk would be providing its services in a more effective and modified form through quality services.