Recently, Nepal Rastra Bank (NRB) loosen up its policies to support declining CD ratio of banks, after which, the banks are rolling up their sleeves to issue preference shares.
By the end of last FY, only two banks had CD ratio below NRB cap while half a dozen banks’ CD ratio was under pressure.
In the last FY, Kumari Bank and NIC Asia Bank had CD ratio below 9 percent. During the year, the banks were required to maintain 9 percent Capital Adequacy Ratio (CAR) including 0.5 percent additional provision for counter cyclic buffer.
However, in the current FY, they are required to maintain 8.5 percent CAR, after recently, NRB brought down counter cyclic buffer to zero percent.
The banks are now required to maintain Capital Adequacy ratio of (CAR) of 11 percent including a Tier-I Capital (core capital) of 8.5 percent and Tier-II capital of 2.5 percent.
Right now, the banks have huge excess liquidity due to which they are in immense pressure to expand their loans and investment. In order to give banks some relief, NRB loosen up its previous policies in the current FY.
Moreover, the interest rates of banks are also in lowest level at present. At the same time, demand for loans is also slowly taking pace, thus, the banks are prepping for aggressive loan expansions.
Banks with low CD ratio
Which Banks Are Prepping for Preference Shares Issue?
Nabil Bank sought NRB approval for preference shares issue four months earlier. The bank is issuing 50 million units of preference shares having face value of Rs 100. The preference share will yield 8 percent dividend from profit.
Similarly, NIC Asia Bank, Kamana Sewa Bikas Bank, NMB Bank and others have also sought NRB approval to issue preference shares.
