KATHMANDU: Despite a substantial increase in funds available for investment in banks and financial institutions, amounting to over Rs. 600 billion, a lack of demand for loans has left much of it untouched.
While deposits continue to rise, there hasn’t been a corresponding uptick in lending, leading to a surplus of funds available for lending every month.
From the beginning of Fiscal Year 2080/81 until Friday (May 31), loans worth Rs. 245 billion were disbursed against deposits totaling Rs. 456 billion.
During this period, the deposit growth rate stood at 7.9 percent, while the loan growth rate remained at 5 percent.
Many argue that the actual loan disbursement falls significantly short of the loan expansion goal set by the central bank for the current fiscal year.
As deposits increase, the average CD ratio of banks declined to 80.08 percent on May 31, compared to 80.17 percent on May 30. Meanwhile, the interbank interest rate remains low at 3 percent.
With only about a month left in the current fiscal year, achieving the targeted loan growth rate of 11 percent seems unlikely, with loan growth expected to be around 6 percent.
While banks have investable funds for loan expansion, the current low loan demand presents a challenge.
The reasons behind banks’ inability to increase lending are under analysis, attributed to the weakened demand side of the economy.
Despite the seasonal decline in loan demand during the monsoon season, CEO of the Bankers’ Association of Nepal, Nischal Raj Pandey, remains optimistic about an increase in loan demand in the near future.
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