KATHMANDU, SEP 03, 2012
Even as commercial and development banks are enjoying excess liquidity due to surge in deposit, finance companies are struggling to lure depositors, suggests a report from the Nepal Rastra Bank.
According to the central bank’s annual macro economic report, deposit mobilisation by the finance companies decreased by 7.5 percent over the last fiscal year compared to the previous fiscal. On contrary, the deposit collection by commercial banks and development banks surged by 26.7 and 34 percent respectively during the last fiscal year compared to previous year.
In aggregate, deposit mobilisation of the banks and financial (BFIs) increased by 22.9 percent to an addition of Rs 188.59 billion in the fiscal year 2011-12.
According to the report, the surge in deposit collection was the result of expansion in economic activities compared to the previous fiscal year and the rise in remittance income. However, the commercial and the development banks were the ones to benefit the most from the increased supply of fund in the financial system, not the finance companies.
According to the NRB, the major reason for the slump in finance companies’ deposit mobilisation is the fall in number of finance companies. Over the last fiscal year, the number of finance companies decreased to 70 from 78 a year earlier. Three finance companies merged with commercial banks and five others merged with development banks. “Such mergers contributed to the growth in deposit of commercial and development banks whereas there was negative growth in finance companies,” said Maha Prasad Adhikari, deputy governor at the NRB.
However, another senior NRB official was of the opinion that not only merger but also the crisis of confidence among people towards these ‘C’ class financial institutions affected deposit flow.
“The main reason behind the negative growth in deposit mobilisation is people’s lack of confidence in finance companies. The issues like bad corporate governance, concentrated credit and misappropriation of funds by the top-management and board members surfaced at various finance companies,” said the official, citing examples of some of the companies that sullied the image of the whole of the finance companies.
Finance companies, including Nepal Share Market and Finance Company, Samjhana Finance, Capital Merchant and Finance, Nepal Sri Lanka Marchant Bank faced troubled due to bad governance on the part of top management, leaving thousands of depositors in lurch.
Finance companies, however, maintain that people still have faith in them. “It’s true that a few cases of anomalies surfaced in the past have hit the people’s confidence to some extent,” said Rajendra Man Shakya, president of the Nepal Finance Companies Association. “But large chunk of withdrawal from the finance companies was done by the institutional depositors like insurance companies, Employee Provident Fund and Citizens Investment Trust among others.”
Claiming that such downfall in deposit collection has not bothered finance companies much, Shakya said almost all the companies are in comfortable liquidity position. “Currently, there is no investment opportunity at all. In this situation, growth in deposit means rise in idle fund which hits the profitability of the finance companies,” he said.
Source: The Kathmandu Post
Even as commercial and development banks are enjoying excess liquidity due to surge in deposit, finance companies are struggling to lure depositors, suggests a report from the Nepal Rastra Bank.
According to the central bank’s annual macro economic report, deposit mobilisation by the finance companies decreased by 7.5 percent over the last fiscal year compared to the previous fiscal. On contrary, the deposit collection by commercial banks and development banks surged by 26.7 and 34 percent respectively during the last fiscal year compared to previous year.
In aggregate, deposit mobilisation of the banks and financial (BFIs) increased by 22.9 percent to an addition of Rs 188.59 billion in the fiscal year 2011-12.
According to the report, the surge in deposit collection was the result of expansion in economic activities compared to the previous fiscal year and the rise in remittance income. However, the commercial and the development banks were the ones to benefit the most from the increased supply of fund in the financial system, not the finance companies.
According to the NRB, the major reason for the slump in finance companies’ deposit mobilisation is the fall in number of finance companies. Over the last fiscal year, the number of finance companies decreased to 70 from 78 a year earlier. Three finance companies merged with commercial banks and five others merged with development banks. “Such mergers contributed to the growth in deposit of commercial and development banks whereas there was negative growth in finance companies,” said Maha Prasad Adhikari, deputy governor at the NRB.
However, another senior NRB official was of the opinion that not only merger but also the crisis of confidence among people towards these ‘C’ class financial institutions affected deposit flow.
“The main reason behind the negative growth in deposit mobilisation is people’s lack of confidence in finance companies. The issues like bad corporate governance, concentrated credit and misappropriation of funds by the top-management and board members surfaced at various finance companies,” said the official, citing examples of some of the companies that sullied the image of the whole of the finance companies.
Finance companies, including Nepal Share Market and Finance Company, Samjhana Finance, Capital Merchant and Finance, Nepal Sri Lanka Marchant Bank faced troubled due to bad governance on the part of top management, leaving thousands of depositors in lurch.
Finance companies, however, maintain that people still have faith in them. “It’s true that a few cases of anomalies surfaced in the past have hit the people’s confidence to some extent,” said Rajendra Man Shakya, president of the Nepal Finance Companies Association. “But large chunk of withdrawal from the finance companies was done by the institutional depositors like insurance companies, Employee Provident Fund and Citizens Investment Trust among others.”
Claiming that such downfall in deposit collection has not bothered finance companies much, Shakya said almost all the companies are in comfortable liquidity position. “Currently, there is no investment opportunity at all. In this situation, growth in deposit means rise in idle fund which hits the profitability of the finance companies,” he said.
Source: The Kathmandu Post
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