Banks swimming in liquidity as remittance soars

KATHMANDU, DEC 15 -

Deposits in commercial banks have continued to balloon over the last five months in a turnaround from the sluggish deposit growth and liquidity crunch of the previous two fiscal years.

Banks took in Rs 7 billion in deposits last week in contrast to loans which rose Rs 1 billion. Deposits swelled by Rs 56 billion in the first five months of the current fiscal year while lending stood at Rs 21 billon, suggesting that banks are struggling to find investment opportunities.

According to Nepal Rastra Bank (NRB), total deposits of commercial banks rose to Rs 743 billion as of Dec 9, up from Rs 687 billion at the end of the last fiscal year. Meanwhile, lending grew to Rs 542 billion on Dec 2 from Rs 521 at the end of the last fiscal year.

With real estate and the stock market wallowing in recession, banks are finding it difficult to locate potential areas to invest their burgeoning deposits. 

NRB officials attributed the growth in deposits to a surge in remittance and growth in tourism income. “The massive growth in remittance due to a strong dollar compared to the Nepali rupee and increased tourism receipts have led to deposits soaring,” said

Maha Prasad Adhikari, NRB deputy governor.

Experts said that with the greenback rising almost 18 percent compared to the Nepali rupee within a span of three months, migrant workers were rushing to repatriate their savings back home to take advantage of the higher exchange rate. “This has led to a growth in remittance in terms of dollars and Nepali rupees,” said Sashin Joshi, chief executive officer (CEO) of NIC Bank.

Bankers have also cited rising public trust in commercial banks for the phenomenal growth in deposits. “Recently, individual deposits and small savings deposits in our bank have gone up which is an indicator of public confidence in banks,” said Ashoke Rana, CEO of Himalayan Bank.

Higher returns from fixed deposits compared to investment in shares have also been cited for the rise in bank deposits. As a result of the increased deposits, banks are awash in excess liquidity and have started lowering the interest rate. A slump in lending is expected to result in lower profits for banks, which has already become evident in their first quarter reports.

Date    Deposits (In Rs billion)    Lending (In Rs billion)

July 15 2011    687    521

Dec 02  2011    736    541

Dec 09  2011    743    542

Source: Kantipur