The central bank claims to have resolved the chronic liquidity shortage through monetary policy, but this has not happened in the domestic banking system. The shortfall in loanable funds raises the risk of soaring interest rates.
“Even though banks have enough funds at the moment, they could undergo a severe crisis if the situation does not improve even after Tihar,” said Bhuwan Kumar Dahal, chief executive officer of Sanima Bank.
Dahal said the shortage of loanable funds in recent days was due to customers withdrawing money to celebrate the ongoing festivals. He added his hope that the ongoing shortfall could be eased after Tihar when people start depositing money in the banking system again.
The central bank’s record shows that deposit collection in the banks stood at Rs2.86 trillion as of the last fiscal year end. During the review period, deposit collection declined month after month followed by a nominal rise by mid-October. On the other hand, the total amount of loans continued to surge.
Gyanendra Prasad Dhungana, president of the Nepal Bankers’ Association, said banks have been facing an overwhelming demand for loans, mainly for the construction of infrastructure, hydropower plants and hotels. “This prompted banks to resort to aggressive lending,” said Dhungana.
The central bank has expanded projected credit to the government by 24 percent, up from the last fiscal year's target of 22.5 percent, through the monetary policy. It has also raised the projected loan amount to the private sector by 1 percentage point to 21 percent, according to bankers.
Rajesh Khanal is a business reporter for The Kathmandu Post covering insurance, the capital market, trade and macroeconomic issues. Khanal has also taught economics at a number of colleges in Kathmandu.
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