MONEY»
Deposit growth slows
KATHMANDU, AUG 19 -
Deposits in commercial banks surged during the last two months of the last fiscal year but slowed down in the first month of the current fiscal year raising strong doubts whether the recent improvement in liquidity would be sustained.
Deposits grew by a mere 0.05 percent in the first month this year remaining practically unchanged at Rs. 623 billion. The meager growth followed a slash in interest rates by banks and financial institutions (BFIs).
At a recent interaction organised by the Finance Companies Association of Nepal, Nepal Rastra Bank governor Yubaraj Khatiwada had warned that a hasty cut in interest rates could bring negative consequences. “The time has not come to slash the interest rate on deposits,” he had said.
Deposits had started to slow down from the first month of the last fiscal year too with the first month seeing a mere 2 percent growth that eventually turned negative in the sixth and seventh months. Deposits had surged by 5.90 percent in the 12th month (mid-June to mid-July) of the last fiscal year, the highest monthly growth in fiscal 2009/10. NRB statistics show that local deposits increased by only Rs. 1 billion in the first month of this fiscal year. Central bank officials attribute this slow growth to the trend of depositors withdrawing money during the period.
Lending by commercial banks has also remained low. The total lending went up by only 0.34 percent in the first month of this year. Lending by commercial banks remained stagnant in the second half of the last fiscal year due to a liquidity crunch. As a result, lending remained negative in eighth, 10th and 12th months of the last fiscal year. With commercial banks offering an interest rate of as high as 12 percent on fixed deposits, more money is being deposited in fixed deposit accounts, said NRB. “Depositor preference has shifted to fixed deposits in recent times,” said an NRB official.
Generally, savings deposits constitute 60 percent of the overall deposits. The proportion has presently dropped to 55 percent indicating that more money is shifting into fixed deposits. “Our study shows that even Indian joint-venture companies in Nepal are putting more money into fixed deposits,” said the official.
Posted on: 2010-08-20 08:44
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