Kathmandu:Lending by commercial banks has picked up of late assuaging concerns over a slump in credit against a backdrop of rising deposits. Bankers had complained about a slowdown in credit demand in the initial months of the fiscal year.

Although the overall loan issue over the last six months is far behind the rise in deposits, lending surpassed deposits in the sixth month, according to Nepal Rastra Bank (NRB). Lending grew by Rs 13.54 billion in the sixth month while deposit collection rose Rs 10.79 billion.

However, deposits grew by Rs 65.92 billion to Rs 753.51 billion while lending grew by just Rs 27 billion during the first half of the fiscal year.

Loans have risen at a time when bankers are worried about possible disappointing profits in the second quarter. NRB spokesperson Bhaskarmani Gnawali termed the sudden rise in loans a natural phenomenon. “It is a sign that lending will pick up in the days to come.”

Chief Executive Officer of NIC Bank Sashin Joshi said that industrialists taking overdraft loans as working capital and banks making payment of overdue amounts of letters of credit opened in the past resulted in higher lending lately.

According to him, loan issue by commercial banks jumped by Rs 5 billion in the last week of the sixth month with overdrafts making up a significant portion of the credit.

Commercial banks saw their profits fall 27 percent in Q1 compared to the same period last year, and they know they will have to lend more to make up for the drop. However, they are finding it difficult to do that amid suppressed demand for loans.

Banks have become more conservative in their lending to ensure that their credit to deposit ratio remains at a comfortable level, and this also affected credit flow in the initial months, according a senior NRB official.

However, Gnawali said that banks were slowly moving to new productive areas to expand lending with realty having lost its attraction, and that it would help increase credit in the coming months.

source: The Kathmandu Post, 21 Jan 2012