KATHMANDU, June 1: Lower than expected growth in deposits over the past two weeks has shattered hopes of bankers who were expecting that the local level polls and surge in capital expenditure at the end of the fiscal year would pump more money into the banking sector that is grappling with shortage of lendable funds.
While bankers were hoping that spending by candidates as well as improved capital spending would ultimately flush bank and financial institutions (BFIs) with cash, there has not been any significant growth in deposits of commercial banks in the aftermath of first phase of local level polls.
According to Nepal Bankers' Association (NBA), local currency deposits at 28 commercial banks grew by only Rs 5 billion in two weeks after the local polls were held on May 14. Between May 12 and May 26, the total local currency deposits of 28 commercial banks rose to Rs 1,854 billion from Rs 1,849 billion. The total deposits including the foreign currency have, however, gone down by Rs 1 billion to Rs 1,954 billion.
With the slow growth in deposits, which have pushed banks toward upper limit of prudential lending, banks are also tightening their credit flow. According to data provided by the NBA, total lending of BFIs has come down to Rs 1,664 billion from Rs 1,665 billion in the same period.
“There has been some improvement in deposit collection in recent weeks. However, it has not met our expectations. Given the release of payments to contractors and huge spending during the local level polls, growth of deposits by mere Rs 5 billion has left us worried,” Bhuvan Dahal, the CEO of Sanima Bank Ltd, told Republica.
One of the major factors attributed to the slow deposit growth is the failure of the government to expedite development expenditures. Some improvement in deposit growth in recent weeks could be due to the rise in the government spending on development projects, according to observers. However, no significant growth in deposits after the elections unlike in the case of previous polls has surprised bankers.
“Though there is a gradual increase in deposits, the pace of the growth has not been as per our expectation,” Sudesh Khaling, the CEO of Laxmi Bank Ltd, told Republica.
“However, only the first phase of the election has been held. Also the capital expenditure is less during the local polls. These could be the reasons behind slow deposit growth,” added Khaling.
With the banks still struggling to find lendable funds, interest rates have not shown signs of going down. Banks are still offering 12 percent interest rates on fixed deposits and 8 percent on saving rates while the lending rates are going beyond 18 percent.
Despite shortage of lendable fund, banks are cashing in on the relaxation offered by Nepal Rastra Bank (NRB) for calculation of prudential lending limit. Through the mid-term review of the monetary policy for 2016/17, the central bank has allowed to subtract 50 percent of productive sector loans from the credit to core capital-cum-deposit (CCD) ratio until mid-July. This regulatory relaxation implies that banks can extend loan amounts equivalent to 50 percent of the credit expanded in the productive sector even without getting fresh deposits.