Liquidity situation: Banks heave a sigh of relief

KATHMANDU, JUN 27 -

Only one commercial bank sought financing from the Nepal Rastra Bank (NRB) through repo (central bank providing funds to banks and financial institutions against their treasury bills) on Sunday. For the last three days, there has been no inter-bank lending among commercial banks and the inter-bank lending rate now hovers around 7 percent.

These are clear signs that banks that were experiencing a tight liquidity situation until last week are feeling somewhat comfortable. Although bankers are apprehensive about whether the present situation will sustain for long, they agree that the liquidity situation has eased.

“For the last three days, demand for inter-bank loan has been almost nil,” said Ashoke Rana, president of the Nepal Bankers’ Association. “This is an indication that the liquidity situation has eased,” he said.

On Sunday, only one bank—Kist Bank—applied for repo. The bank received Rs 100 million through repo although the central bank issued repo worth 1.5 billion. “There is a surplus liquidity of Rs 9 billion in the market,” said a senior NRB official.

It also suggests that the central bank’s measures, including refinancing, special refinancing, repo and lender of last resort, have started to make positive impact at least on commercial banks. About a dozen BFIs have received around Rs 1 billion under both types of refinancing facilities, according to NRB. Bankers say the central bank’s assistance has played a crucial role in easing the liquidity crunch.

Bankers attribute the ease in liquidity situation to three factors—the government’s increased spending, diversion of deposits to commercial banks and banks halting lending.

Recent rise in the government spending has also given some relief to banks. As of last week, the government treasury held Rs 11 billion. The figure two months ago stood at Rs 20 billion. “The increased government spending, of late, has helped ease the liquidity crunch,” said NIC Bank CEO Sashin Joshi. “NIC Bank’s deposits grew by 10 to 12 percent over the last 3 to 4 months.”

The banking system received liquidity of Rs 6 billion last week. According to bankers, the government providing pension fund to government-owned banks also helped ease the liquidity crunch. Commercial banks are also benefiting from the diversion of deposits from B and C class financial institutions to them for the last few months. Until last fiscal year, B and C class financial institutions were experiencing diversion of deposits to them, according to NRB.

Bankers say sudden rise in the share market last week also helped bring liquidity in banks, as funds of shares transactions came to the banking system. “If the stock market continues to improve, liquidity problems will gradually ease,” said Rana.

However, liquidity has been concentrated mainly in government-owned banks and older banks. “We are still facing a tight liquidity situation,” said Kist CEO Kamal Gyawali. New banks are finding it difficult to get financing through repo as they do not have enough treasury bills.


Central bank help sought for Capital Merchant’s revival

Officials of the Nepal Finance Companies’ Association on Sunday sought the central bank’s help to revive Capital Merchant Banking and Finance Limited (CMBF) which landed in trouble due to bad corporate governance and acute liquidity crunch. “We asked the central bank to help CMBF the way it helped Vibor Bikas Bank,” said Narayan Man Rajbhandari, MD, Universal Finance, who was also a part of the delegation that went to the central bank. Last week, the central bank had rejected refinancing to the finance company for its bad governance. The central bank supervision identified irregularities of Rs 1.4 billion in the company. “We asked the NRB to first save the company and settle the issue of governance latter,” said Rajbhandari.

MUKUL HUMAGAIN & PRITHVI MAN SHRESTHA, http://www.ekantipur.com/2011/06/27/business/liquidity-situation-banks-heave-a-sigh-of-relief/336355.html