Rising interest rates do not attract deposits – The Himalayan Times – Nepal’s No.1 English Daily Newspaper
KATHMANDU, MARCH 1
Even though commercial banks have raised interest rates on deposits, deposit collection remains subdued.
According to the latest data provided by the Nepal Bankers Association (NBA) – the umbrella organization for commercial banks – the total deposits of 27 commercial banks stood at 4.313 trillion rupees as of February 25, compared to recorded 4.311 trillion rupees. two weeks earlier, that is, February 11.
“Deposit collection increases with rising interest rates only when people keep their money at home rather than keeping it in the bank,” NBA CEO Anil Sharma explained, adding that the analysis of the current fiscal year scenario reveals that the root cause of the shortage of liquidity in the banking sector is not related to interest rates.
“The massive increase in imports coupled with the decline in remittances is the main driver of the current liquidity crisis,” he said.
Despite the tight liquidity situation, bank credit growth during the review period amounted to Rs 10 billion. The total disbursement of the loan had reached Rs 4.165 trillion on February 25 against Rs 4.155 trillion till February 12.
However, NBA CEO Sharma said the Rs 10 billion credit disbursement is actually nominal when split among the 27 commercial banks.
In line with central bank instructions, commercial banks, which offered 10.05% interest per annum on term deposits before February 1, are now offering 11.03%. Similarly, the interest rate on savings accounts has increased to 6.03%.
While Nepal Rastra Bank has ordered commercial banks to limit their credit-to-deposit (CD) ratio to less than 90% by mid-July 2022, according to NRB Deputy Spokesperson Narayan Prasad Pokhrel, the CD ratio of 20 banks exceeded the limit of 90%, and the liquidity coverage ratio (LCR) of 23 commercial banks is below 25%.
The CD ratio reveals how much of the money that banks have raised in the form of deposits has been deployed in the form of loans, and the LCR refers to the proportion of highly liquid assets held by financial institutions, to guarantee their ability continue to meet their short-term obligations. .
“Investment in credit to the private sector in the first six months of the current fiscal year increased by 28% compared to the NRB’s projection of 19% in the monetary policy of 2021-22, which reflects the crisis liquidity in the banking sectors.
Thus, the recent mid-term review of monetary policy has mainly focused on stabilizing external factors by managing domestic demand.”
In order to alleviate the shortage of liquidity, the NRB injected an additional 4.732 billion rupees into the country’s financial market over the seven and a half months.
“The central bank is ready to inject or mop up funds via various monetary instruments as the situation develops,” Pokhrel assured.
A version of this article appears in the March 2, 2022 printing of The Himalayan Times.