Loan growth surpasses deposit mobilization

Commercial banks have added Rs 53 billion in deposits in the current fiscal year so far, while they extended Rs 60 billion in loans during the period. Data compiled by Nepal Bankers Association shows total deposit in 28 commercial banks climbed up to Rs 1,805 billion as of last Friday, up from Rs 1,752 billion in mid-July.  Similarly, total lending has reached Rs 1,446 billion from Rs 1,386 billion in mid-July. Earlier banks were observing deposit growth in high rate compared to lending. However, loan growth surpassing deposit mobilization in recent months indicates that banks are likely to get away with liquidity surplus problem that they were facing for a long time. Bankers say that lending is picking up in recent months after a long stagnation due to various factors like political uncertainty, earthquakes, Tarai turmoil and Indian blockade. However, the deposits growth has slowed down relatively due to drop in remittances inflow, failure of the government to increase capital spending and ultra-low interest rates offered by the banks. With liquidity situation in banking system coming to a 'comfortable' position, interest rates are also moving upward. Some of the commercial banks are already offering 7 percent interest on yearlong fixed deposit. The monthly average fixed deposit rate of August was 5.34 percent. “The credit flow of banks was almost stagnant when the capacity utilization of industries was under 15 percent and import of merchandise and raw materials was halted due to Indian blockade. Now, trade is smooth and the industries are also performing well, creating demands for the loans," Kishore Maharjan, vice president of Nepal Bankers Association, said. "On the other hand, flow of remittances is dropping in recent months while people withdraw deposits on the eve of festive seasons." Unlike in the earlier fiscal years when the credit to deposit ratio used to go down significantly in the first quarter, many banks are seeing such ratio climbing upward, according to Maharjan. "It is because deposit is getting squeezed and credit is expanding. So banks are also raising rates to get more deposit so that they can maintain CD ratio or they borrow from the central bank through instruments like repo," he added. Source: republica