Banks maintain CD ratio
KATHMANDU, FEB 22:
Commercial banks have succeeded in maintaining a credit to deposit (CD) ratio of below 80 per cent thanks to a flush in deposits.
According to the unaudited second quarterly report of the current fiscal year, the average CD ratio of banks stands at 72.5 per cent which is seven percentage points below the limit set by the central bank which had directed financial institutions to maintain a CD ratio at 80 per cent by the second quarter of the current fiscal year.
However, if the four newly opened commercial banks that have yet to complete one fiscal year of operations are excluded then the average CD ratio of commercial banks stands at 78.5 per cent. The average CD ratio of the new commercial banks stands at 71 per cent.
In the corresponding period of the last fiscal year, the average CD ratio of the older banks was 90 per cent due to the liquidity crunch. At that time the growth in deposits had slowed in comparison to lending, however, the situation has reversed this time. Deposits of banks have grown close to Rs 800 billion by the second quarter while lending is below Rs 600 billion.
Banks have been apprehensive about extending loans in order to maintain the prescribed CD ratio, terming the provision as one of the major reasons for the ongoing credit crunch.
“It is wrong for banks to blame the 80 per cent CD ratio as the reason for contraction in lending,” said spokesperson for Nepal Rastra Bank Bhaskar Mani Gyanwali.
“There is enough space for banks to channelise their funds to viable projects and still maintain the prescribed CD ratio,” he added.
NRB had directed banks and financial institutions (BFIs) to bring down the ratio to 80 per cent by the end of the second quarter of this fiscal year, that is, mid January 2012 from 85 per cent. Banks can only lend 80 per cent of the total deposits collected.
Among the 31 commercial banks, only Agriculture Development Bank has failed to comply with the central bank’s directive as its CD ratio stands at 81.29 per cent.
Standard Chartered Bank has maintained the lowest CD ratio at 55.52 per cent followed closely by Rastriya Banijya Bank with 55.72 per cent.
The central bank had introduced a regulation directing BFIs to maintain a CD ratio of within 95 per cent to supervise the credit exposure of BFIs to the real estate sector back in December 2009.
Then, the financial sector had gone through a severe liquidity crunch brought on by an over exposure to realty loans as some of the commercial banks’ CD ratio had even exceeded 100 per cent, that is, the amount of credit floated by banks and financial institutions could not be covered by the amount of deposits collected.
Source: THT
