Liquidity and Loan Demand Situation of Banks

Currently, banks have sufficient liquidity, but due to low demand for loans in the market, they are compelled to keep cash in their vaults. As of Bhadra 16, banks have maintained a Credit-Deposit Ratio (CD ratio) of 78.94%, with over NPR 600 billion of investable capital.

Key Highlights:

Liquidity Status:

• Banks have collected total deposits of NPR 6.464 trillion, of which only NPR 5.191 trillion has been invested in loans.

• Due to the inability to invest deposits, the 'cost of funds' for banks has increased.

Interest Rate Status:

• Loans are currently available at the lowest interest rates in the past 32 months. The average base rate of banks has dropped to 8.01%, leading to a decline in loan interest rates.

Spread Rate:

• Nepal Rastra Bank has set a maximum spread rate limit of 4% for banks.

• Based on the spread rate for the month of Ashar, 16 banks have a spread rate below 4%.

Priority Sectors:

• Banks are not allowed to charge more than a 2% premium on loans for priority sectors such as agriculture, tourism, industry, small energy, and small, micro, and cottage industries (SMEs).

Banks with Low Base Rates:

• Eight commercial banks have a base rate lower than the average, including Nepal Bank, Rastriya Banijya Bank, Nabil Bank, Nepal Investment Mega Bank, Standard Chartered Bank, Everest Bank, Global IME Bank, and Sanima Bank.

Conclusion:

While banks have ample liquidity, there is low demand for loans in the market. Despite lower interest rates, the demand for loans continues to decrease, adding challenges to banks' fund management. Fluctuations in the spread rate and base rate can impact both depositors and borrowers, indicating that further efforts are needed to improve loan interest rates.