Comparative Analysis Reveals Variation in Credit and Deposit Ratios Across Different Classes of BFIs in Nepal Till Baisakh End

Nepal's banking sector exhibits diverse trends in credit and deposit ratios among different classes of Banks & Financial Institutions (BFIs) till the end of Baisakh, 2080 (Mid-May 2023), according to the latest data released by the Nepal Rastra Bank (NRB). This analysis offers valuable insights into the financial performance and sectoral allocations within the country's banking industry. 

                                         ^{As of Baisakh End, 2080 (Mid-May, 2023)}                                                        

Among the notable findings, Class "A" banks emerge as leaders in terms of the deposit-GDP ratio, indicating a high level of public trust in these institutions. These banks accounted for 89.99% of the total deposit-to-GDP ratio. Meanwhile, Class "B" banks held a 10.11% share, Class "C" banks secured 2%, and Class "D" banks exhibited a robust ratio of 102.11%.

Regarding the credit-to-GDP ratio, Class "A" banks maintained their dominance, accounting for 80.36% of the total credit extended in relation to GDP. Class "B" banks secured an 8.59% share, while Class "C" banks and Class "D" banks exhibited ratios of 1.72% and 90.67% respectively.

As of mid-May 2023, the analysis also delved into the total credit/ total deposit, providing insights into how banks manage their resources. Class "A" banks demonstrated a strong ratio of 89.29%, indicating an efficient utilization of their deposits. Class "B" banks recorded a ratio of 84.92%, followed by Class "C" banks at 85.87%, and Class "D" banks at 88.79%.

In terms of the credit-deposit (CD) ratio, all classes of banks maintained balanced ratios. Class "A" banks recorded a CD ratio of 84.97%, Class "B" banks registered 84.07%, Class "C" banks exhibited 84.68% and Class "D" banks demonstrated 84.88%. The consistent credit-to-deposit ratios across the classes of banks reflect a prudent approach to lending and effective utilization of deposited funds to support economic growth and meet the financial needs of individuals, businesses, and various sectors. The credit-to-deposit ratio is an important indicator of a bank's lending capacity and the utilization of deposited funds for extending credit.

Examining the allocation of deposits within different categories, the analysis showed that Class "B" banks had the highest proportion of fixed deposits, accounting for 68.75% of the total deposit amount. Class "A" banks held 58.2%, Class "C" banks secured 73.11%, while Class "D" banks maintained a ratio of 59.54%.

Furthermore, Class "A" banks led in terms of savings deposits, capturing 26.15% of the total deposit amount. Class "B" banks accounted for 22.98%, Class "C" banks held 17.29%, and Class "D" banks secured 25.66%. The analysis also revealed variations in current deposits and call deposits. Class "A" banks led in terms of current deposits with 8.65% of the total deposit amount. Class "B" banks accounted for 1.46%, Class "C" banks held 0.85%, and Class "D" banks secured 7.78%. As for call deposits, Class "C" banks exhibited a higher allocation of 7.38%, followed by Class "A" banks at 6.05%, Class "B" banks at 6.77%, and Class "D" banks at 6.15%.

The data also shed light on the non-performing loan (NPL) ratios. Class "A" banks demonstrated lower NPL ratios compared to other classes, with a ratio of 3.23%. Class "B" banks registered 3.4%, while Class "C" banks and Class "D" banks exhibited ratios of 8.19%.

Additionally, the analysis highlights two crucial indicators: the Total Loan Loss Provision (LLP) and the Deprived Sector Loan-to-Total Loan ratio. The Total LLP-to-Total Loan ratio provides insights into the banks' risk management practices and their ability to absorb potential loan losses. Class "A" banks exhibited a favorable ratio of 2.52%, indicating sound risk management and proactive provisioning. Class "B" banks followed closely with a ratio of 2.47%, showcasing similar risk mitigation efforts. However, Class "C" banks showed a relatively higher ratio of 5.82%, indicating a need for enhanced risk management strategies. Class "D" banks maintained a ratio of 2.58%, indicating adequate provisions for potential loan losses.

The Deprived Sector Loan-to-Total Loan ratio highlights the allocation of loans to the deprived sectors of the economy, emphasizing financial inclusion and support for marginalized communities. Class "A" banks showed a ratio of 6.43%, reflecting their commitment to inclusive lending practices. Class "B" banks exhibited a higher ratio of 12.11%, demonstrating their significant contributions to supporting the deprived sectors. Class "C" banks maintained a ratio of 7.52%, while Class "D" banks displayed a ratio of 6.88%.

As the banking sector continues to evolve, maintaining favorable credit-to-deposit ratios will be crucial to ensuring a stable and resilient financial system, enabling banks to effectively meet the credit requirements of the economy while safeguarding the interests of depositors.

The NRB's commitment to prudent regulation and supervision, along with the continued collaboration between banks and regulatory authorities, will be pivotal in sustaining a healthy balance between credit extension and deposit mobilization, fostering a robust and inclusive financial sector in Nepal.