Sharp Contraction in Commercial Banks' Lending, New Loan Extension Falls to Zero

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Sharp Contraction in Commercial Banks' Lending, New Loan Extension Falls to Zero

With the dwindling of credit demand due the lockdown imposed by the government, private sector lending of commercial banks has sharply contracted in the last month. According to data provided by the Nepal Bankers’ Association (NBA), commercial banks registered Rs 16 billion of negative credit of their total loan extension in April-May (Baisakh) compared to March-April (Chaitra).  The banks in March-April extended a total of Rs 42 billion in loans. The total loan extension of 27 commercial banks reached Rs 2,845 billion by March-April which declined by Rs 16 billion to Rs 2,829 billion in April-May. The total credit of banks become negative because of collection of old loans but zero extension of new loans.  

However, collection of deposits has remained satisfactory despite a dip in April-May. In March-April, commercial banks collected a total of Rs 49 billion in deposits which declined to Rs 30 billion in April-May. The total deposit collection of banks reached to Rs 3,219 billion in April-May from Rs 3,189 billion in March-April.  

Bhuvan Kumar Dahal, president of NBA said that halt in commercial and other transactions has negatively impacted the banking sector. “With no end in sight of the lockdown, industries and businesses have remained shut down. As a result, bank transactions have decreased sharply,” he mentioned.

Bankers are having a hard time as the current situation does not allows for extension of new loans due to which interest rate income of banks is also following a declining trend. According to Dahal, the credit-to-core capital-deposit (CCD) ratio of commercial banks has decreased to 76 percent because of halt in extension of new loans. However, renewal of deposits is ongoing in banks. “The banking system therefore has adequate investment-grade liquidity at present which is being invested in government bonds such as treasury bills,” informed Dahal.

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