Banks cut lending to manage CD Ratio

KATHMANDU, APR 29:

Maintaining the regulatory credit to deposit ratio (CD Ratio) seems to have got banks into restraining their lending in the third quarter of the current fiscal year.

The credit to deposit ratio of eight among the nine commercial banks that have published their third quarter financials so far has gone down in comparison to previous quarters. The financials of class ‘A’ financial institutions show little expansion in credit while deposit has grown, demonstrating that fighting off possible liquidity crunch has once again taken the front seat.

Reports of Sanima Bank, NMB Bank, Nepal Investment Bank, Bank of Kathmandu, Everest Bank, Commerz and Trust Bank, Citizens Bank International and Global IME Bank show that these banks have pulled down their credit to deposit ratio. NCC Bank’s financials show the bank’s credit to deposit ratio has increased. All these banks have credit to deposit ratio well below the regulatory requirement set by Nepal Rastra Bank.

In the second quarter, NIBL’s CD Ratio crossed 80 per cent regulatory limit and stood at 81.29 per cent which now stands at 77 per cent. To maintain the ratio, it seems to have expanded its deposit base by 6.14 per cent while it extended more loans by a mere one per cent in the last three months.

“The pressure to maintain credit to deposit ratio will affect the willingness of banks to extend more loans if the deposit growth rate becomes shaky,” said a CEO of a commercial bank, adding that, however, in the last couple of months deposit rates have started to go up which has increased the deposits with banks.

Earlier, deposits had started to contract which was attributed to minimal interest rates for deposits being offered by banks. The liquidity situation has started to get tight which compromises the ability of banks to lend to big projects.

Everest Bank’s lending has declined by 0.8 per cent in the third quarter as compared to the previous one. The bank had lent about Rs 42.2 billion by mid-January, which by mid-April reduced to Rs 41.9 billion.

The tight liquidity situation has also started to reflect on inter-bank lending rate. The weighted average inter-bank rate, at which one bank borrows from another for a short term, stands at above six per cent by April 25, according to central bank statistics. The rate stood at around less than four per cent three months back in February.

“Some banks are struggling with liquidity due to expansive lending and low interests being offered but the situation is showing signs of improvement as deposit rates will go up,” the CEO said.

Source: THT