Battle between NRB‚ banks continues over interest spread

KATHMANDU: 

Although commercial banks are battling against the central bank’s decision to contain interest spread at five per cent, their first quarter financials show the net spread to be way below the regulatory limit. 

Nepal Rastra Bank (NRB) had earlier asked financial institutions to maintain average difference in deposit and lending rates —also known as interest spread—within five per cent from the beginning of the third quarter of the current fiscal year. With the implementation date —mid-January—coming near, banks have started lobbying for revocation of the

Bank investment starts to go up

KATHMANDU, Nov 30, 2013

Loan flow from commercial banks has started to go up after the Constituent Assembly (CA) elections.

Banks have issued loans worth more than one billion rupees since the election held on November 19. Investment of banks had remained near stagnant over few months until the election due to political uncertainty.

According to bankers, total lending of commercial banks have increased to Rs 788 billion compared to Rs 787 billion recorded last week.
Commercial banks had been witnessing slowdown in demand for credits for the past few months. However, with the CA elections over, investors have started to approach banks for fresh loans.

Banks have mobilized Rs 51 billion in the first quarter of the current fiscal year. However, their lending had remained slow during the quarter. Despite being in a high liquidity position, banks had managed to invest only around Rs 33 billion during the review period.

Banks interest spread shrinks

KATHMANDU, MAY 21: 

The shrinking interest spread rate of commercial banks has reduced their interest income.

The net interest income of 32 class ‘A’ financial institutions has dived by about five per cent in third quarter of the current fiscal year as their income through interest has shrunk while interest payment is still large.

The net interest income that stood at Rs 23.2 billion in the corresponding period of the last fiscal year has come down to Rs 22 billion, according to the unaudited financial statements of the 32 commercial banks in the country. The 31 commercial banks that were in operation last year had recorded Rs 27.8 billion by the end of the fiscal year.

Likewise, average interest spread of the banks has come down to 3.4 per cent in the last quarter. Around this time last year, the average spread of banks stood at 4.8 per cent.

The net interest income is simply the difference between revenues generated by the interest-bearing assets such as loans and interest-burdened liabilities such as deposits. Interest income is the major income source of banks that determines the profit level of the bank.

The net interest spread refers to income received from its lending activities and expenses made to pay for borrowing. Spread being the profit margin for the banks, the higher the spread, the higher the income.

Due to contracting interest income and spread, banks also faced a massive decline in their profits last quarter. Due to the liquidity crunch two years back, banks had to scale up their deposit interest rate which in turn had led to a large increase in interest rates. The deposit rate went up as high as eight to 10 per cent for savings deposit which pushed the lending interest rate to as high as 18 per cent.

Banks have attracted enough deposits from the public but in the absence of viable projects to finance in recent days, their interest yielding assets have not expanded much. The super high lending rate discouraged borrowing by public as well.

Moreover, due to the cap on the real estate sector which is

the major borrower from banks, the sector cannot be provided much loans due to the central bank’s regulation.

The banks have excess liquidity which has led to a growth in the total interest payments in comparison to total interest yield. Banks have started dropping the interest rate –– especially on home and auto loans –– in order to stimulate the market.

According to bankers, due to the absence of viable projects to finance, they are more into investing in low-yielding government securities –– especially treasury bills.

The interest rate on government debt instruments being around one per cent has further hit their income sources. Among the 32 commercial banks, Nepal Bank has the largest spread of 5.49 per cent while Machchhapuchhre Bank has the lowest interest spread at 1.8 per cent.

Source: THT

Nepal Bank plans to issue 1:9.5 right shares

KATHMANDU, FEB 3 2012

The much needed recapitalisation of the oldest commercial bank is finally underway as Nepal Bank’s proposal to issue rights shares has garnered approval from the regulator.

“We will soon be issuing right shares to the existing shareholders in 1:9.5 ratio to raise capital,” said coordinator of the management committee of Nepal Bank Maheshwor Lal Shrestha. To increase its paid up capital to Rs 4 billion, it will raise funds worth Rs 3.62 billion by issuing rights shares to the existing shareholders, including the government.

The government holds 41 per cent stake in the bank while 50 per cent is owned by public shareholders and the remainder belongs to different financial institutions.

The recapitalisation plan — forwarded to the central bank in November 2011 — was recently approved by Nepal Rastra Bank (NRB) and also by the High Level Financial Coordination Committee.

“NBL is required to increase its paid up capital to Rs 2 billion by the end of next fiscal year and if the plan is executed well on time, the bank will also be able to improve its capital adequacy framework,” Shrestha pointed out. Currently, the bank’s paid up capital stands at Rs 830 million.

However, more than half a century of bad loan and bad corporate governance has left the bank’s net worth negative by Rs 4.22 billion as of the end of last fiscal year.

Increasing paid up capital by Rs 4 billion will still fall short in making the bank’s capital adequacy ratio sufficient. The 75 year old bank that is going through almost a decade long Financial Sector Restructuring Program since 2002, has improved its performance, but the bank’s core capital is still negative.

A comprehensive audit of the bank in 1999 discovered that the bank was on the brink of insolvency due to a large number of willful defaulters. “Nepal Bank will sell the fixed but unproductive assets to raise the remaining funds,” spokesperson for NRB Bhaskar Mani Gyanwali informed, adding that the central bank is in agreement with NBL’s plan.

Earlier, the government had been suggested to inject the required deficit capital or provide loans worth the deficit amount.

Source: THT

NRB mulls action against banks failing to insure deposits

Amid commercial banks’ cold response to the central bank’s directive on deposit insurance, Nepal Rastra Bank (NRB) is coming up with some strict measures against those failing to get their deposits insured.

The central bank has issued a directive for commercial banks to get their individual deposits up to Rs 200,000 insured with the Deposit and Credit Guarantee Corporation (DCGC) after implementing the provision in B, C and C class FIs last fiscal year.

As of now, only four commercial banks—Mega, Civil, Citizens and Machhapuchhre—have got their deposits insured. Nabil Bank, Standard Chartered Bank and Nepal Investment Bank are in the process to insure their deposits, according to DCGC.

Among the measures being considered by the central bank includes, first issuing warnings and second, forbidding them to work in the areas of foreign exchange. “The next stage of punishment may be a ban on buying and selling government securities,” said a senior NRB official.

NRB Spokesperson Bhasker Mani Gyawali said the central bank will start taking action against banks if they fail to comply with the NRB directive on deposit insurance by mid-December. “For now, we have not issued any timeline considering that banks are responsible institutions and that they will comply with the NRB directive without forcing us to take action against them,” said Gyawali, who is also the chairman of DCGC.

The need for insuring deposits was realised after BFIs started landing in trouble as a result of bad corporate governance and other reasons. The process of putting in place the deposit insurance provision was initiated after Nepal Development Bank went to liquidation, putting public deposits worth millions of rupees at risk.

Although the government has decided to implement the provision on individual deposits up to Rs 500,000, the central bank has executed it on deposits up to Rs 200,000. The central bank says it will increase the limit gradually.

Bankers have been complaining that the insurance premium rate is too high. They have also questioned DCGC’s capacity. “We, however, will comply with the NRB directive,” said NIC Bank CEO Sashin Joshi.

DCGC has fixed the annual premium rate at 20 paisa per Rs 100. As per the Deposit insurance Bylaw-2010, the premium will not be refunded to member BFIs and those failing to maintain their capital adequacy ratio will have to pay an additional 10 paisa premium on half yearly basis.

However, it has been realised that DCGC’s capacity should be enhanced so as to make it able to handle large deposit insurance. That’s why DCGC is also gearing up to increase its paid-up capital. The department’s capital base currently stands at Rs 480 million and an additional Rs 500 million will be injected soon.

DCGC is scheduled to call a special general meeting on Dec 9 to make the announcement of the additional capital injection. By the end of this fiscal year, it plans to inject an additional Rs 20 million by issuing bonus shares and increase its paid-up capital to Rs 1 billion. The department plans to increase the figure to Rs 2 billion by the end of the fiscal year 2012-13.

Source: Kantipur