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Kathmandu Wednesday August 22, 2001 Bhadra 06, 2058.
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Banking sector in good liquidity position
‘Recent withdrawals will have no adverse impact’
Post Report
KATHMANDU, Aug 21 - Banking officials have said that the
recent "abnormal" withdrawals from the commercial banks will have no adverse
impact on the economy since the amount involved is very nominal compared to the total
deposits.
The assurance from the banking sector follows the unusual
withdrawal from the banks after the Prime Minister Sher Bahadur Deuba’s recent
announcement to freeze land transactions.
"The motive of such withdrawals is to segregate huge
deposits into smaller ones through inter banking deposits transfers," said Narendra
Bhattarai, president of Nepal Bankers’ Association.
The withdrawal cases suddenly surged after some of the major
political parties demanded that along with the new land reform policy that will draw a
limit on individual land holding the government should also announce property limitations.
Talking to the pressmen here Tuesday, Bhattarai said that a
total of only Rs 400 million were withdrawn after the PM’s announcement.
"However, the Rs 400 million out of the total banking deposit of Rs 170 billion will
not have any remarkable effects on the overall liquidity position of the economy," he
assured.
He also informed that the present depositors withdrew in a
bid to break their bulk deposits in smaller pockets that would fall within the expected
limit. Rumors are high on that the government under political pressure will limit property
holdings.
Bhattarai also said that the lending of the banking system
has frozen due the government’s announcement to freeze the transaction and
registration of land. "The decision has severely affected the normal functioning of
banks since almost 80 per cent of the total loans are sanctioned against land as
collateral."
The announcement has created havoc among the banks as they
have extended huge amount of loans on land collateral. Freezing the sale of land would
naturally affect the recovery of bad debts through land auction.
Furthermore, if the land offered as collator falls beyond the
limitation and is seized by the government, then the banks will not be able to recover
their investment. Bhattarai informed that a meeting of the association has demanded with
the government to make necessary arrangement to minimize the risk upon the banking system.
"As per the present announcement, we cannot auction the
land kept as the collateral for next six months, which will create serious imbalance in
the flow of funds," he said.
Either the government should be ready to compensate the
losses of the banks or should free auctioning of such land that are under the banks’
ownership as collateral, he added.
If concrete steps are not taken on time, the uncontrollable
soar in the liquidity will swell the non performing assets of the commercial bank to 50
per cent from the present 30 per cent, he warned. "Such a situation may lead some
banks into bankruptcy as well, which will then propagate into the other healthy
banks," he said.
He also requested with the government to review the recently
enforced directives as the socio-economic condition of the country is not in good health.
"In the present context of deteriorating business environment, some of the provisions
of the directives, particularly that on loan classification and loan loss provisions
should be relaxed," he said.
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