Bank credit grows as interest rates fall
KATHMANDU, MAR 26 -
Commercial banks have shown some aggression in lending over the last two months.
Banks’ loan disbursements had remained slow in the first six months of the current fiscal year due to suppressed credit demand.
Both deposits and credit grew by around Rs 20 billion in the last two months, according to Nepal Bankers’ Association (NBA). The association’s figures show that deposits of commercial banks grew to Rs 774 billion as of March 16 from Rs 754 billion in mid-January. Over the period, their lending increased to Rs 574 billion from Rs 555 billion.
The first half of this fiscal year saw banks’ profits decline massively, with some witnessing a fall of over 95 percent in profits. Banks’ limited lending over the period has been attributed for the profit decline, as interest income from lending is their biggest income source.
Bankers said credit demand is increasing from some specific sectors. “As usual, the construction season began after mid-January, increasing the demand for steel and cement,” said BN Gharti, deputy general manager at Kist Bank. “That’s why a significant amount has been lent to the sector.”
As farmers sell their paddy and sugarcane harvest after January, commercial banks lend to mills during this period, Gharti added.
Nepal Rastra Bank (NRB) has also said bank credit has grown in productive sectors. “The number of banks seeking refinancing from the central bank has increased,” said NRB Spokesperson Bhaskarmani Gnawali. “This also suggests that bank credit is increasing in productive areas.”
The central bank provisioned refinancing for banks against their lending in some specific productive areas.
The surge in lending has also been attributed to the decline in interest rates. The decrease in interest rates is an encouraging sign for lending growth, Gnawali said.
Average lending rate of commercial banks has come down to 13.72 percent as of mid-January from earlier over 15 percent. Experts had been blaming high lending rates for suppressed credit demand.
Some bankers, however, said it is too early to draw a conclusion that whether the latest lending growth is sustainable. “We are noticing some positive changes after the fall in interest rates, but we are still unsure about its sustainability,” said NIC Bank CEO Sashin Joshi. “We can come to a conclusion only after analysing figures after the end of the third quarter.”
A leading private bank’s CEO, however, said the credit growth was due to some banks’ desperate attempt. “The country is yet to attain political stability and business environment has not improved. I do not see a rational reason for credit demand to surge,” the banker said.
BoP posts record surplus of 75.9b
The country’s balance of payments (BoP) posted yet another record surplus of Rs 75.09 billion as of the seventh month of the current fiscal year. With growing remittance and tourism income, the BoP surplus has continuously been surging over the last few months. According to the Nepal Rastra Bank’s report on the country’s macro-economic situation released Sunday, remittance rose 35.5 percent and tourism income rose 28.4 percent over the first seven months of this fiscal year. Also, the resource outflow for educational purposes declined by 24.9 percent, boosting foreign exchange reserves. As of the seventh month, inflation stood at 7 percent, a slight rise from the sixth month’s figure of 6.8 percent, the lowest in last four years.
Source: Kantipur
