Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Commercial banks are experiencing a sharp decline in their fund utilization capacity as credit demand from the private sector remains weak. The virtual halt in loan disbursement has led to a massive stockpile of over NPR 1.1 trillion in excess liquidity within the banking system.
According to data from the Nepal Rastra Bank (NRB), the total deposits across the banking and financial system have reached NPR 7.515 trillion, while loan disbursements are limited to NPR 5.644 trillion. This creates a gap of NPR 1.871 trillion. Out of this, approximately NPR 1.1 trillion represents the liquid fund that commercial banks can immediately use for lending.
Commercial banks alone hold NPR 67.58 trillion in deposits with loan dispersal restricted to NPR 50.22 trillion. Due to the lack of credit expansion, the overall system’s Credit-to-Deposit (CD) Ratio has dropped to 74.25%, significantly below the regulatory limit of 90%.
Out of the 20 commercial banks, only six have seen their CD Ratio surpass the 80% mark. Prime Bank leads the group at 86.26%, followed by NMB Bank (84.88%) and Sanima Bank (83.53%).
High CD ratios traditionally signal aggressive loan expansion. However, current data indicates that previous aggressive lenders like NIC Asia and Siddhartha Bank are now pursuing a strategy of reducing business growth.
Analysts warn that as the CD ratio rises, so does the liquidity risk for banks. High lending ratios can pose a challenge to managing emergency funds, increasing the potential for problems during market instability.
Meanwhile, recent NRB data indicates that the Non-Performing Assets (NPA) of some banks have exceeded 5%. Regulators have called upon these institutions to be proactive in loan recovery, restructuring, and risk management.
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