Banks sitting on piles of money for lack of borrowers

KATHMANDU, MAR 02 -

Commercials banks are seeing their deposits swell, but their lending has fallen short of expectations. As of Feb 24, credit issue rose 6.67 percent to Rs 565 billion while deposits registered a double-digit jump of 11 percent to Rs 767 billion.

According to Nepal Rastra Bank (NRB), banks received deposits worth Rs 80 billion, whereas their loans grew by just Rs 37 billion during the first seven months of the fiscal year.  Lending was expected to grow robustly after the second half of the fiscal year when economic activities generally surge. However, lending grew by Rs 10 billion in the last one and a half months. Loans had expanded by Rs 14 billion in the sixth month while the earlier months had been disappointing. Bankers said that demand for loans had slowed this year compared to previous years. “There is little credit demand this year, and it is natural to see a slowdown in lending growth,” said Sashin Joshi, chief executive officer of NIC Bank. “There are no new enterprises coming for loans in recent days, and the old ones are also not asking for credit.  Bankers said the slowdown in lending would automatically lead to a decline in their profits by the end of this fiscal year. The signs are already there as most of the commercial banks have witnessed a sharp decline in profits in the second quarter.

Interest on lending is the biggest source of income for banks. “Not only has lending declined, the rate of lending has also come down while banks are holding on to massive amounts deposits which is adding to their costs,” said Joshi.

Bankers said banks were unlikely to see robust lending until the peace process and the constitution writing process are completed.

Central bank officials also said that the current state of lending was disappointing, and continuation of such a situation would lead to a decline in profits. Nepal Rastra Bank Governor Yubaraj Khatiwada has described the slowed lending growth this year as “credit crunch”. 

“But banks should not only run after profits, they should try to expand in the productive sector,” said a senior NRB official. The official added that a little more growth in lending would be perfect for stability in the banking sector, but explosive growth compared to deposits would be harmful for the system.

Source: Kantipur