Bank lending leaps at the end of Q3

KATHMANDU:

The pain of excess liquidity might be easing since the pace of lending seems to have sped up as the third quarter approached the end, with the credit growing by whopping Rs 10 billion in just a week.

The amount of loans floated by the commercial bank reached Rs 858 billion by mid-April 2014, which was at Rs 848 billion by the end of April first week. As the third quarter approached the end, all of the banks seem to have accelerated its lending activity. On the other hand, deposit grew by mere Rs six billion during the period, according to Nepal Bankers’ Association (NBA) statistics.

“The credits are growing, but we are yet unable to predict the course as both deposit and credit have been fluctuating since some time,” pointed out President of NBA, Rajan Singh Bhandary.

“During the end of each quarter most of the financial institutions see flurry of financial dealings and transactions, so lending must have gone up,” he added.

Nepali financial sector has been undergoing a long spell of liquidity surplus since the beginning of the fiscal year. However, of late, the pace of lending seems to be picking up as the banks’ credit to deposit ratio — that shows how much of the collected deposit is lent by the banks — has been creeping up.

“The deposit has not moved afar from Rs 1125 billion and loans have been bobbing over Rs 850 billion since past three to four months,” he pointed out.

Since the beginning of the fiscal year, Nepali banking sector has about Rs 50 billion loanable cash on hand, but the amount had not been mobilised into credit. The regulator and development partners such as World Bank have called the excess liquidity ‘a fortunate problem’.

Although, deposits have grown by 11 per cent and total loans by more than 13 per cent since mid-July, the banks still have about excess liquidity worth Rs 47 billion as of mid-April. The expanding government expenditure along with contracting excess liquidity might have helped to increase credit flow as the fiscal year neared the end.

The excess liquidity has contracted the income of the banks with the rates of alternative investment instruments such as government securities plunging below one per cent. Moreover, low credit demand is a warning sign about the lack of inducement to invest in the country. Since September, NRB has held reverse repos worth Rs 352.5 billion to mop up excess liquidity from the market.

Source: THT