KATHMANDU, JUN 15, 2012
As liquidity-rich banks struggle to expand their loan portfolio even in the fourth quarter, bankers fear that profits might take a beating this fiscal year.
The aggregate profit of commercial banks slumped 15 percent by the end of the third quarter year. Credit demand seemed improving in third quarter, with lending going up by Rs 31 billion.
However, the figure again started declining. In the last two months, banks’ deposits increased by Rs 32 billion, whereas lending increased by just Rs 11 billion.
What has worried bankers most is that even declining interest rates have not been able to boost credit demand. The dissolution of the Constituent Assembly (CA) has further pushed back investors’ investment plans. “Even the number of corporate clients seeking loans have come down,” said NMB Bank CEO Upendra Poudel. “With energy crisis forcing industries to produce below their installed capacity, industries are reluctant to take fresh credit.”
Bankers say credit demand from industries like cement, iron and steel, which require more energy, has slowed down. Generally, these industries are bank’s biggest clients. “These industries are running below their actually capacity due to energy crisis and a slump in housing and real estate business,” said NIC Bank CEO Sashin Joshi. “Therefore, their demand for loan has decreased.”
According to bankers, the only sector that is still demanding credit is small and medium enterprises (SMEs). “Small traders and tourism entrepreneurs are demanding loans,” said Joshi.
Other sources of income for banks are investment in government securities and inter-bank lending. However, returns on both these investments are low at present. According to the central bank, inter-bank lending rate is 0.56 percent and return on 91-days Treasury bill is 1.25 percent.
Along with squeezed credit demand, difficulty in loan recovery, especially realty loans, has added to bank woes. “Developers are neither being able to sell property, nor make loan repayment,” said BN Gharti, deputy general manager of Kist Bank. “Lending to big developers has become a real headache for bankers.”
Problems in loan recovery have also pushed loan loss provisioning up. Banks are required to create provisioning of least 25 percent of loans that could not be recovered within three months of maturity. If banks fail to recover the loans within next six months, they should create provisioning of 50 percent of the loans. The rate goes up to 100 percent if the loans are not repaid within a year of maturity.
Source: The Kathmandu Post
As liquidity-rich banks struggle to expand their loan portfolio even in the fourth quarter, bankers fear that profits might take a beating this fiscal year.
The aggregate profit of commercial banks slumped 15 percent by the end of the third quarter year. Credit demand seemed improving in third quarter, with lending going up by Rs 31 billion.
However, the figure again started declining. In the last two months, banks’ deposits increased by Rs 32 billion, whereas lending increased by just Rs 11 billion.
What has worried bankers most is that even declining interest rates have not been able to boost credit demand. The dissolution of the Constituent Assembly (CA) has further pushed back investors’ investment plans. “Even the number of corporate clients seeking loans have come down,” said NMB Bank CEO Upendra Poudel. “With energy crisis forcing industries to produce below their installed capacity, industries are reluctant to take fresh credit.”
Bankers say credit demand from industries like cement, iron and steel, which require more energy, has slowed down. Generally, these industries are bank’s biggest clients. “These industries are running below their actually capacity due to energy crisis and a slump in housing and real estate business,” said NIC Bank CEO Sashin Joshi. “Therefore, their demand for loan has decreased.”
According to bankers, the only sector that is still demanding credit is small and medium enterprises (SMEs). “Small traders and tourism entrepreneurs are demanding loans,” said Joshi.
Other sources of income for banks are investment in government securities and inter-bank lending. However, returns on both these investments are low at present. According to the central bank, inter-bank lending rate is 0.56 percent and return on 91-days Treasury bill is 1.25 percent.
Along with squeezed credit demand, difficulty in loan recovery, especially realty loans, has added to bank woes. “Developers are neither being able to sell property, nor make loan repayment,” said BN Gharti, deputy general manager of Kist Bank. “Lending to big developers has become a real headache for bankers.”
Problems in loan recovery have also pushed loan loss provisioning up. Banks are required to create provisioning of least 25 percent of loans that could not be recovered within three months of maturity. If banks fail to recover the loans within next six months, they should create provisioning of 50 percent of the loans. The rate goes up to 100 percent if the loans are not repaid within a year of maturity.
Source: The Kathmandu Post
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