With Nepal Rastra Bank adopting tighter monetary policy along with a slowdown in loan demand, the commercial banks’ lending grew by a marginal 3.42 percent in the last fiscal year.
The commercial banks that experienced a liquidity crunch in the first half of the FY 2022/23 saw problems of non-disbursement of loans in the second half of the last fiscal. Bankers said demands for loans have remained low throughout the last fiscal.
While the NRB had targeted private sector credit growth to 12.6 percent in 2022/23, the actual credit growth remained much lesser than the target. In fact, the credit expansion to the private sector in 2022/23 was far less than what the banks lent in 2021/22. The banks’ lending grew by 3.42 percent in 2022/23 compared to 12.2 percent in 2021/22.
According to bankers, the private sector has not sought bank loans with the deepening economic downturn. On the other hand, retail loans such as housing loans and auto loans did not grow due to higher interest rates. While the BFIs gradually lowered the loan interest rates, the demand for loans did not surge as expected.
According to the data of the Nepal Bankers Association (NBA), commercial banks disbursed loans amounting to Rs 144bn in 2022/23 whereas such loan disbursement in 2021/22 stood at Rs 454bn. The total lending of banks by the end of the last fiscal year stood at Rs 4,318bn.
“The demands for loans have remained subdued due to the state of the economy and businesses,” said Sudesh Khaling, CEO of Everest Bank, “In the initial months of the last fiscal, credit flow could not increase due to a lack of liquidity in the banking system. Later, when the liquidity situation improved, there was no demand for loans.”
Bankers say the other reason behind the sluggish lending is banks have become more cautious in loan disbursement due to a sharp rise in non-performing loans (NPLs).
According to the private sector, the high-interest rates also contributed to lower demand for loans. The private sector has been demanding that interest rates need to be lowered arguing that the average interest rate of loans remained higher that previous years.
Deposits of commercial banks increased by 12 percent in 2022/23. The banks’ deposits stood at Rs 5,086bn in mid-July 2023 from Rs 4,541bn in mid-July 2022. The banks’ deposits increased by Rs 545bn in the last fiscal.
After going through a liquidity crunch in the first half, the banking system was flushed with excess liquidity by the end of the last fiscal. With demands for loans drying up, investable capital piled up in the banking system in the last few months of 2022/23.
With lesser demand for loans, the CD ratio of commercial banks came down to 82.10 percent in mid-July 2023, which was 88.07 percent in mid-July 2022. As per central bank regulatory norms, banks can disburse 90 percent of their deposits in loans. Banks have to maintain the credit-to-deposit ratio (CD ratio) at 90 percent.
