Banks at the moment are hard-pressed in keeping the credit to core capital plus deposit (CCD) ratio within the regulatory limit of 80 per cent as deposit collection has been sluggish.
As per the data on deposit and lending compiled from 28 banks in operation, in the third quarter of the current fiscal year, most banks were close to the permissible CCD level as average CCD ratio of the banks stood at 79.7 per cent.
Commercial banks have collected deposits worth Rs 2,190 billion till the third quarter of this fiscal and mobilised credit worth Rs 2,002 billion in the review period. Core capital of the commercial banks hovers at Rs 320 billion. Banks cannot lend more than 80 per cent of the total of core capital and deposit.
Banks have been facing this problem since the second quarter of the ongoing fiscal as deposit collection has been rather slow due to slow remittances inflow and export growth as well as tepid foreign direct investment flow. The government’s capital expenditure has also been slow, which compounded the challenge of the banks further in the third quarter.
However, credit demand from the private sector has increased as the import of capital goods has considerably grown as the reconstruction and other construction activities are on the rise.
Banks have been sanctioning only those critical loans that were committed long back and to those projects that have already been initiated, according to Anil Keshary Shah, deputy CEO of Nabil Bank. Shah further added that the growth in deposits has been very low in this fiscal and the trend that has been witnessed is the reshuffling of funds from one bank to another bank to capitalise on the high interest rates being offered by some banks.
Apprehensive about the skyrocketing interest rate on deposits that has posed a serious threat to borrowers because consequently the lending rate could also unpredictably rise, commercial banks have set a target to keep the interest rate within a certain benchmark, according to bankers. However, that move had been widely criticised as an interest rate cartel of the commercial banks.
In the first nine months of the current fiscal year deposits of commercial banks increased by Rs 197 billion to Rs 2,190 billion, and credit expanded by Rs 267 billion to Rs 2,002 billion.
Against this backdrop, Nepal Rastra Bank (NRB) — the central regulatory and monetary authority — has allowed banks to borrow from foreign banks in convertible foreign currency to address the current crisis of loanable funds. However, except for the International Finance Corporation (IFC) of the World Bank Group, there has not been any other foreign financial institution ready to lend to Nepali banks.
As per the regulatory provision banks can borrow up to 25 per cent of their core capital in convertible currency to lend in productive areas as defined by the central bank.
“Foreign banks and financial institutions have not shown interest to provide loans as they seek sovereign guarantee to lend in any country,” said Shah, adding, “IFC, which has been working in Nepal since long knows well about the country’s risk and lending through Nepali banks.”
Source: The Himalayan Times