KATHMANDU, Jan 15: It looks like depositors, who had started withdrawing money from commercial banks following interest rate cuts, have started acclimatizing themselves to the low-yield climate. This is what bank deposit figures compiled by Nepal Rastra Bank indicate.
Commercial banks began this fiscal year on a low note, particularly in terms of deposit collection, with many depositors withdrawing their funds following reduction of average one-year interest rate from as high as 12 percent to around seven percent, owing to liquidity surplus.
The impact of rate cuts was immediately seen as deposit collection grew by mere 0.2 percent in the first month of the current fiscal year. The situation further worsened in the second month and deposit base of banks shrunk by 0.1 percent. Then for the next two months deposit growth rate at commercial banks remained static at 1.7 percent.
Amidst this situation, the five-month figure shows some improvement, as deposit growth rate stood at 3.2 percent in the period--the highest recorded so far this financial year.
Although deposit expansion rate posted in the period is nowhere near 10.3 percent reported in the same period last fiscal year, bankers have taken the hike positively, as it shows growing confidence of depositors in commercial banks--albeit they are not in a mood to hike deposits rates any time soon due to persisting surplus of liquidity.
“One of the reasons behind the deposit hike is rise in remittance channeled by Nepalis working abroad,” Anal Bhattarai, CEO of Commerz and Trust Bank, told Republica.
Nepal received Rs 163.49 billion in remittance from overseas workers in the five-month period of the current fiscal year to mid-December, up 22.7 percent than in the same period last fiscal year. Although the remittance growth rate recorded this year is lower than 37.9 percent registered in the five-month period last year, the volume went up from last year´s Rs 133.19 billion.
Higher inflow of remittance, much of which remained at commercial bank accounts, pushed up bank deposits to Rs 889.55 billion rupees in the five-month period from Rs 861.69 billion registered in mid-July, when the fiscal year began.
Another reason for deposit growth, according to Bhattarai, is migration of depositors from other financial institutions to commercial banks. Although this is not taking place at a rapid pace, many depositors have started moving base to banks after governance-related problems started cropping up in development banks, finance companies and cooperatives, Bhattarai said.
“Another reason for deposits growth is the natural factor as well,” Bhattarai said, referring to the common banking practice of making periodic interest payment to depositors, which subsequently coverts into deposits.
Currently, average one-year deposit rate at commercial banks hovers at seven percent, which means deposit growth rate would automatically stand at around seven percent at the end of the year. "Considering this, deposits should have gone up automatically by around 2.9 percent in the five-month period," Bhattarai said.