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Banks continue to lend aggressively despite slow deposit growth

2018-03-29

Though bank executives say that they have slowed down lending in recent months due to shortage of funds, data suggests otherwise.

According to a data of Nepal Bankers Association (NBA), total lending of 28 commercial banks rose by Rs 22 billion between February 9 and March 23 while their local currency deposits grew only by Rs 27 billion in the review period.

The outstanding loan disbursements of commercial banks stood at Rs 1,969 billion, while their deposit rose to Rs 2,157 billion.

Bankers have been saying that they have halted new loans except for some urgent projects. However, the lending growth figure looks higher if compared to the rise in their deposit volume.

This mismatch is pushing credit to core-capital-cum-deposit (CCD) ratio -- the prudential lending limit -- of banks toward the 80 percent ceiling. According to the association, the industry average CCD ratio as at Wednesday stands at 78 percent. This means that the commercial banks have now only 2 percentage point lending space. 

A few banks -- like Rastriya Banijya Bank Ltd and Standard Chartered Bank Nepal Ltd -- seem to still be in comfortable liquidity positions. So, the rise in lending figures that you see is from these banks, not those who are in tighter position.

–Bhuvan Kumar Dahal,

CEO, Sanima Bank Ltd

“The current CCD ratio actually means that the lending should come to a halt. Most of the banks whose CCD ratio has reached the saturation level have stopped new loans,” Bhuvan Kumar Dahal, CEO of Sanima Bank Ltd, told Republica. “Few banks like Rastriya Banijya Bank Ltd (RBBL) and Standard Chartered Bank Nepal Ltd seem to be still in comfortable liquidity position. So, the rise in lending figure that you see is from these banks, not those who are in tighter position,” he added.

Banks, which succeeded in maintaining lower CCD ratio until the ‘credit crunch’ hit the banking industry, are finding this tighter situation an opportunity to attract new clients.

The government-owned RBBL is one which has been reaping benefits from the current situation.  “Previously, we used to have mostly SMEs clients. Now, with other banks facing CCD problem, many new clients, mostly corporate clients, are turning up to RBBL to get loans. Our loan investment has increased significantly in recent months as we are in a very comfortable position to lend,” Bhupendra Pandey, acting deputy CEO of RBBL, said, adding that the bank has CCD ratio of 68 percent.

The slowdown in deposit mobilization is putting upward pressure on interest rates.

While banks have been coming up with schemes to attract public’s savings, there has not been any significant growth in their deposit. Many bankers say that deposit has been shifting from one bank to another as banks are competing to offer higher rates through various schemes.

After the NBA imposed a fixed deposit rate cap of 11 percent, some banks have published a scheme attracting depositors with 11 percent interest on one-year fixed deposit scheme that offers advance payment of interest.

Source: My republica