KATHMANDU, JUN 28 -
Commercial banks have been able to lend just over 50 percent of their deposits this fiscal year. With only two weeks left for the fiscal year to end, commercial banks are struggling to increase their lending which has stagnated throughout the fiscal year.
Bank deposits surged by Rs 133.42 billion in the first 11 months while lending has remained at Rs 69.98 billion. For the last 11 months, the credit-to-deposit ratio has been a mere 52 percent which means that for every Rs 100 collected as deposit, Rs 52 has been lent. As per international practice, a healthy credit-to-deposit ratio would be 80 percent.
The current situation is reversal over last year where Nepal Rastra Bank had to caution the banks regularly to maintain the credit-to-deposit ratio as prescribed by the central bank. Credit demand that looked to be improving in the third quarter has again declined in the last two months. In the last two months, bank deposits increased by Rs 32 billion while lending increased by Rs 11 billion only.
According to bankers, banks have learnt from last year’s liquidity crisis and have become more conservative in their lending to ensure that their credit-to-deposit ratio remains at a comfortable level. “This also affected credit flow,” according to a banker. They say such slumps in lending will seriously affect the profitability of banks at the end of the fiscal year.
The aggregate profit of commercial banks had slumped by 15 percent by the end of the third quarter, and bankers are expecting a further decline by the end of the fiscal year. “It is difficult to predict the actual figure, but the result of the fourth quarter will be much worse than that of the third,” said Sashin Joshi, CEO of NIC Bank.
Bankers attribute the political stalemate for the slow growth in credit demand. Dissolution of the Constituent Assembly (CA) has further pushed back investors’ investment plans and bickering over the new budget has made the private sector wary.
“The appetite for corporate loans has decreased significantly currently,” said BN Gharti, DGM of Kist Bank. “Hence, we have shifted our major thrust to areas like small and medium sized enterprises (SMEs) and agriculture business.” He added that in order to improve the SME portfolio, Kist Bank’s board recently decided not to approve loans exceeding Rs 30 million.
Bankers say there has been a steady growth in lending to SMEs. “The portfolio doesn’t swell overnight while lending to such areas,” said Gharti. “It will take at least a couple of years.”
Along with squeezed credit demand, difficulties in loan recovery, especially realty loans, have added to the woes of banks. “Realty lending made in the past is still a big problem for banks as recovery has not been satisfactory,” said Joshi. “This will further hit profitability.” Problems in loan recovery have also pushed loan loss provisioning up, slashing profits. Other sources of income for banks are investment in government securities and inter-bank lending. However, returns on both these investments are low at present. According to the central bank, the inter-bank lending rate is 0.56 percent and the return on 91-day Treasury bill is 1.25 percent.
Source: http://www.ekantipur.com/2012/06/28/business/bank-lending-down-while-deposits-swell/356276/
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