The pain of excess liquidity might be easing since the pace of lending seems to have sped up as the third quarter approached the end, with the credit growing by whopping Rs 10 billion in just a week.

The amount of loans floated by the commercial bank reached Rs 858 billion by mid-April 2014, which was at Rs 848 billion by the end of April first week.As the third quarter approached the end, all of the banks seem to have accelerated its lending activity. On the other hand, deposits grew by mere Rs six billion during the period, according to Nepal Bankers' Association (NBA) statistics.

“The lending is growing, but we are unable to predict the course as both deposits and credits have been fluctuating since co some time,“ point Date ed out President of 15/07 NBA, Rajan Singh 16/08 Bhandary.

“During the end 13/09 of each quarter 18/10 most of the finan 15/11 cial institutions see flurry of 13/12 financial dealings 17/01 and transactions, 14/02 so lending must 14/03 have gone up,“ he added. 18/04 Nepali financial sector has been going through a long spell of liquidity surplus since the beginning of this fiscal year.However, of late, the pace of lending seems to be picking up as the banks' credit to deposit ratio -that shows how much of the collected deposit is lent by the banks -has been creeping up.

“The deposit has not moved afar from Rs 1125 billion and loans have been bobbing over Rs 850 billion since past three to four months,” he pointed out.

Since the beginning of the fiscal year, Nepali banking sector has about Rs 50 billion loanable cash on hand, but the amount had not been mobilised into credit. The regulator and development partners such as World Bank have called the excess liquidity ‘a fortunate problem’.

Although, deposits have grown by 11 per cent and total loans by more than 13 per cent since mid-July, the banks still have excess liquidity worth Rs 47 billion as of mid-April. The expanding government expenditure along with contracting excess liquidity might have helped to increase credit flow as the fiscal year neared the end.

The excess liquidity has contracted the income of the banks with the rates of alternative investment in struments such as govern ment securities plunging below one per cent. More over, low credit demand is a warning sign about the lack of inducement to invest in the country. Since Septem ber, NRB has held reverse repos worth Rs 352.5 billion to mop up excess liquidity from the market.

source: the himalayan times,29 april 2014