Collecting deposits for local elections – The Himalayan Times – Nepal’s No.1 English Daily Newspaper

KATHMANDU, MAY 19

The recent local elections have shaken the collection of deposits in the country’s commercial banks during the 10th month (from mid-April to mid-May) of the current financial year.

According to the latest data provided by the Nepal Bankers’ Association (NBA) – the apex organization of commercial banks in the country – the total deposits of 27 commercial banks fell sharply from Rs 19 billion between April 14 and May 13 to Rs 4.370 trillion after witnessing a gradual recovery in the previous month.

By the end of the ninth month of the current financial year, the total deposit of commercial banks had reached Rs 4.389 trillion.

The country’s financial market is currently under pressure to manage liquidity, which has been largely blamed on the NRB’s implementation of the credit-to-deposit (CD) ratio rule. Through monetary policy, the NRB had replaced the credit-to-core capital plus deposit (CCD) ratio with a maximum limit of 85% by CD ratio with a ceiling at 90%.

The objective must be reached by the end of this exercise, that is to say in mid-July.

In addition, the banking system faced a deposit crisis due to weak government spending, slow export growth and slowing remittance growth. As a result, banks faced a crisis of loanable funds to expand their business.

This is evident from NBA data which shows that the flow of credit from commercial banks during the reporting period fell by six billion rupees.

Total loan disbursement had fallen to 4.191 trillion rupees during the reporting period from 4.197 trillion rupees till April 14.

In line with central bank instructions to attract deposits, commercial banks, which offered 10.05% interest per annum on term deposits before February 1, are currently offering 11.03%. Similarly, the interest rate on savings accounts has increased to 6.03%.

However, the measures appear to have largely failed to attract depositors.

A version of this article appears in the May 20, 2022 printing of The Himalayan Times.

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