More than Rs50b mopped out of financial system

  • Move leaves many banks and financial institutions at risk of breaching the CCD ratio 
- BIBEK SUBEDI, Kathmandu

Jan 18, 2019-

At a time when the banking industry of the country is reeling under acute shortage of loanable fund, more than Rs50 billion has been mopped out from the total deposits of the banks and financial system as advance payment of the income tax owed by the businesses to the government. By the end of this fiscal year’s second quarter, businesses have to make an advance payment of tax to the government. 

According to statistics provided by different bankers that the Post talked to, around Rs 50 to 60 billion was transferred into state coffers from total deposits of the commercial banks operating in the country although official statistics have yet to be revealed by the Nepal Rastra Bank, the central bank of the country. 

This has led to a situation where many banks are finding it increasingly difficult to maintain the credit to core capital-cum-deposit (CCD) ratio within the statutory requirement. The CCD ratio imposed by the NRB for banks and financial institutions currently stands at 80 percent, which means a bank cannot extend more than 80 percent of its deposit and core capital as loans.

Before the fund was transferred to the state coffers, the 28 commercial banks operating in the country were sitting on total deposits of Rs2656.35 billion while their total lending amounted to Rs2368.4 billion. Similarly, the combined CCD ratio of the 28 commercial bank stood at 77 percent. With a significant chunk of money making its way out of the banking system, many banks might struggle to maintain their CCD ratio set by the central bank, according to bankers.    

“This will definitely put many banks in a precarious situation,” said Bhuvan Dahal, CEO at Sanima Bank. Central bank officials also agreed that some of the banks will have a hard time maintaining their CCD ratio to the regulatory limit. 

“A few banks were regularly breaching the regulatory ratio even before the end of the second quarter of the current fiscal year,” said the NRB source, seeking anonymity as he was not allowed to speak to the press. “Now, with a significant chunk mopped out of the system, their predicament will worsen.” 

Bankers demanded that the government must come up with ways to inject the cash into the financial system to rescue the banks. “The central bank should increase the fund used to provide refinancing facility to the banks,” said Dahal. “Likewise, the government should transfer the fund allocated to the local bodies to commercial banks operating within such bodies.”  

The demand for credit, according to Dahal, is still high. “There is an immediate demand of Rs30 to 40 billion but the banks are not in a position to meet such demand,” he said.  

“Currently, Nepal Bank Limited and Rastriya Banijya Bank are the only two banks that are in a comfortable position.”

Published: 18-01-2019 07:22

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