Lending slows, deposits soar as borrowers wary

- POST REPORT, Kathmandu

Jul 20, 2015-

Lending by commercial banks in the last two months has been sluggish while deposits have soared with borrowers treading cautiously after the April 25 earthquake, the Nepal Bankers’ Association (NBA) said.

The NBA’s records show that commercial banks issued loans valued at Rs12 billion between May 1 and July 10, a growth of 1.11 percent. Total lending has reached Rs1,089 billion as of date.

On the other hand, deposit collection surged by Rs92 billion to Rs1,430 billion, a growth of 6.87 percent over the review period. While demand for credit shrank on slowed economic activities following the disaster, an increase in the inflow of remittance and a jump in deposits triggered by concern for the safety of cash held at home led to a lopsided loan-deposit scenario.

Ashoke Rana, CEO of Himalayan Bank, blamed the fall in business following the quake and ambiguity in government policy in the budget for the slow growth in lending. Imports were disrupted and investment plans of businesses shelved after the earthquake. Likewise, Ashok Sherchan, chief executive officer of Prabhu Bank, said the lending ratio usually slows during the last quarter of every fiscal year. In the last quarter, banks concentrate on recovery of loans while holding back on lending. 

According to a banker, there has been a substantial rise in individual deposits following the earthquake which could be due to the fact that people were concerned about the safety of their money. With deposits overtaking lending, banks are awash in excess liquidity amounting to more than Rs100 billion. As a result, banks have been forced to buy treasury bills and other debt instruments of the government at very low interest rates. 

Inter-bank lending has stopped for a long time and the interest rate on 91-day treasury bills has sunk to less than 1 percent. The interest rate on 15-year development bonds was at an all-time low of 2.65 percent. Despite the sharp drop in the interest rate on government debt instruments, banks have not slashed their interest rates on deposits and loans. However, Sherchan hoped that interest rates would go down gradually in the new fiscal year.



Deposits-Credit Compared

Date    Local Currency Foreign Currency Total deposit   Total Credit

08-05-2015 1,260b 95b              1,355b            1,079b

15-05-2015 1,275b 97b              1,372b            1,089b

22-05-2015 1,282b 96b              1,378b            1,080b

29-05-2015 1,288b 95b              1,383b            1,080b

05-06-2015 1,300b 94b              1,394b            1,080b

12-06-2015 1,307b 98b              1,405b            1,080b

19-06-2015 1,314b 97b              1,411b            1,080b

26-06-2015 1,321b 96b              1,418b            1,084b

03-07-2015 1,327b 96b              1,423b            1,087b

10-07-2015 1,335b 96b              1,430b            1,089b

Published: 21-07-2015 09:00

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