Banks competing harder to extend short-term loans
KATHMANDU, AUG 28 -
Excess liquidity and low credit demand have triggered an intense competition among commercial banks to attract clientele for short-term lending.
Although the banks are still not confident to disburse long-term loans, they are quite aggressive when it comes to short-term tending (30-90 days’ maturity period).
Bankers are even reaching out to big corporate houses requesting them to accept loans. “We are now involved in direct marketing,” said Nepal Commerz and Trust Bank CEO Anal Bhattarai. “But we have not compromised the prudent banking norms.”
Bhattarai added that as soon as a borrower repays loans, bankers remain under immense pressure to find a new one.
“A single business is getting loan offers from multiple banks,” said NIC Bank CEO Sashin Joshi. “Businesses are using the loans received from one bank for the repayment of loans taken from another. They are using short-term borrowing perpetually.”
Many banks are disbursing credit without even assessing the actual credit need of businesses, bankers say. Increasing deposits and suppressed credit demand are compounding banks’ costs. “Under such pressure, banks are lending without assessing the working capital need of businesses,” said Joshi. “Chances that businesses will be over-leveraged through multiple borrowing are high.”
Experts say as long as there is surplus liquidity in the financial system, chances of over-leveraging are high and may invite greater risks. Joshi said the Nepal Rastra Bank (NRB) should think about addressing the issue. “I am not suggesting micro-management, but the central bank should bring some broader guidelines to curb over-leveraging and multiple borrowing,” he said.
NRB officials also agree if lending is supply-driven — like what is happening at present — it will encourage businesses to borrow more than what they actually need.
The central bank has received two cases of multiple borrowing and over-leveraging, a source said, adding that this has alerted the regulator. “The practice, however, is not rampant and that we are not bringing a directive any time soon,” said a senior NRB official. “In order to bring a regulatory directive, we have to find out ample cases during our supervision.”
Posted on: 2012-08-28 08:30