Nepali Banks Face Cash Crunch, Limit Loan Offering

Getting a loan from Nepali banks is not an easy task now!

As the reports say, Nepali banks are facing serious liquidity crunch over the last few weeks, stopping them from offering business loans to enterprises.

According to local bankers, the cash crunch is majorly due to high expenditure in the early months of the current fiscal compared to revenue earnings. This is stopping many banks from meeting local businesses’ credit requirements.

“There is a lot of demand for loans due to boost in business confidence as Nepal has a stable government after the three-tier elections in 2017. But, we are facing difficulty to lend to the enterprises as per their demands due to lack of adequate fund,” NMB Bank CEO Sunil K.C said on November 26, 2018.

According to Nepal Bankers’ Association, deposits in the commercial banks grew by only 3.7 percent compared to lending that saw 7.7 percent rise, leading to credit expansion in line with the regulatory limit.

While the banks are supposed to maintain 80 percent Core Capital combined with Credit To Deposit (CCD) ratio, the number stands at 78 percent giving only 2 percent scope for further lending, informed Nepal Rastra Bank (NRB).

“It means, if a large-scale withdrawal of deposit takes place, the banks will no longer be in the position to lend further,” says Ashoke Rana, CEO of Nepal’s leading commercial bank, Himalayan Bank.

While the government is looking at an 8 percent economic growth target, bankers opine that the continuation of liquidity crunch will hurt the growth of overall economy in the days to come.

“But, the extent of impact would depend on whether credits have been extended to the productive sector,” says Nara Bahadur Thapa, Executive Director of NRB.

Addressing Nepal Cash Crunch
Addressing the concern to some extent, NRB offered banks the flexibility to lend more by garnering loans from international institutions up to 50 percent of their core capital.

Himalayan Bank has recently taken USD 15 million loan from the International Finance Corporation(IFC). “We have also initiated the process of borrowing another USD 15 million from a British financial institution. Once we get this fund from abroad, it will help ease liquidity in our bank,” adds Sunil.

According to bankers, the recovery can happen if government spending can increase in the months to come driving more revenues to the treasury and further to banks.

Cash crunch is a common trend for Nepali banks usually in the last months of the financial year.