Banks´ lending dangerously high
KATHMANDU, April 8:
The liquidity situation does not seem to ease anytime soon, as the lending has increased seven fold compared to deposits, in the first seven months of the current fiscal year.
“The volume of deposits of the commercial banks observed increment of Rs 7.64 billion from the beginning of the fiscal year while volume of loans floated by the commercial banks has increased by Rs 49.35 billion,” according to the macroeconomic report released by Nepal Rastra Bank (NRB).
In a single month from mid January to mid March, the banks’ deposit mobilisation rose by Rs 2.4 billion while the deposit mobilisation in the corresponding period in the previous fiscal year had increased by Rs 5.4 billion.
Along with the increment in the volume of lending, the inter-bank transaction of commercial banks has increased by almost 28 per cent by mid-February, in comparison to the corresponding period last fiscal year. “Inter-bank transaction of the banks also reached Rs 225.43 billion during the first seven months of the fiscal year, as compared to Rs 175.49 billion in the corresponding period of the previous year,” said the report.
The tight liquidity in the financial sector translates as a crunch in availability of credit to borrowers that ultimately pushes the lending interest rate. The higher rate of interest means the increased cost of investment that ultimately hits the productive capacity of the nation as a whole.
The financial sector -especially the commercial banks -has been plagued by liquidity shortage caused by dwindling deposits since quite sometime. The emergence of finance companies and development banks has been accountable for taking depositors away from class ‘’A’’ financial institutions.
Normally, the money released by NRB is supposed to return to the vault within three months but since some time back it is difficult to estimate the velocity of the currency due to rise of quasi-formal financial sector.
Moreover, the rising informal financial sector has made the central bank’s measures to regulate the monetary sector ineffective. There is no data whatsoever of the volume of money being handled by the semi-formal financial sector such as saving and credit cooperatives, making the effective implementation of monetary measures quite impossible. Though, Department of Cooperative (DoC) has asked the cooperatives handling the deposits more than Rs 10 million to report their financials however the compliance is still not effective.
The delayed budget has further hurt the liquidity starved financial sector of Nepal. The delay in budget by four months has postponed the release of government expenditure in the market.
Source: THT
The liquidity situation does not seem to ease anytime soon, as the lending has increased seven fold compared to deposits, in the first seven months of the current fiscal year.
“The volume of deposits of the commercial banks observed increment of Rs 7.64 billion from the beginning of the fiscal year while volume of loans floated by the commercial banks has increased by Rs 49.35 billion,” according to the macroeconomic report released by Nepal Rastra Bank (NRB).
In a single month from mid January to mid March, the banks’ deposit mobilisation rose by Rs 2.4 billion while the deposit mobilisation in the corresponding period in the previous fiscal year had increased by Rs 5.4 billion.
Along with the increment in the volume of lending, the inter-bank transaction of commercial banks has increased by almost 28 per cent by mid-February, in comparison to the corresponding period last fiscal year. “Inter-bank transaction of the banks also reached Rs 225.43 billion during the first seven months of the fiscal year, as compared to Rs 175.49 billion in the corresponding period of the previous year,” said the report.
The tight liquidity in the financial sector translates as a crunch in availability of credit to borrowers that ultimately pushes the lending interest rate. The higher rate of interest means the increased cost of investment that ultimately hits the productive capacity of the nation as a whole.
The financial sector -especially the commercial banks -has been plagued by liquidity shortage caused by dwindling deposits since quite sometime. The emergence of finance companies and development banks has been accountable for taking depositors away from class ‘’A’’ financial institutions.
Normally, the money released by NRB is supposed to return to the vault within three months but since some time back it is difficult to estimate the velocity of the currency due to rise of quasi-formal financial sector.
Moreover, the rising informal financial sector has made the central bank’s measures to regulate the monetary sector ineffective. There is no data whatsoever of the volume of money being handled by the semi-formal financial sector such as saving and credit cooperatives, making the effective implementation of monetary measures quite impossible. Though, Department of Cooperative (DoC) has asked the cooperatives handling the deposits more than Rs 10 million to report their financials however the compliance is still not effective.
The delayed budget has further hurt the liquidity starved financial sector of Nepal. The delay in budget by four months has postponed the release of government expenditure in the market.
Source: THT
