Commercial banks lend aggressively despite liquidity crisis – myRepublica

KATMANDU, September 28: The country’s commercial banks have granted loans to their customers nearly four times the amount of deposits collected last week despite a liquidity crisis in recent days.

According to the Nepal Bankers Association (NBA), banks issued loans of 31 billion rupees in a week last Friday compared to their collection of deposits of 9 billion rupees. With an increase in economic activities after a drop in the coronavirus infection rate, the demand for loans has increased at a noticeable rate, bankers said.

The country’s financial market is currently under pressure to manage liquidity, which has been attributed in large part to the implementation of the credit-to-deposit (CD) ratio rule by the NRB. As part of monetary policy, the NRB replaced the ratio of granting credit to basic capital plus deposit (CCD) with a maximum limit of 85% per CD ratio with a ceiling of 90%.

The decline in liquidity adequacy has also been attributed to very low government spending due to the financial shutdown for about a week after the government was unable to approve the budget on time. Showing pressure on the loanable fund, banks began to raise interest rates on deposits and loans.

During the first 10 weeks of the current fiscal year, commercial banks collected a total deposit of Rs 418 billion while they lent Rs 390.03 billion, according to the NBA.

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