NRB eases inter-bank lending

KATHMANDU, JUN 28 -

In yet another effort to ease the ongoing liquidity crisis in the banking sector, the central bank has opened a new financing window for bank and financial institutions (BFIs).

As per the new facility, crisis-hit BFIs can borrow loans from other BFIs by putting up good loans and other types of assets (fixed assets) as collateral for a period of six months. As per the earlier provision, inter-bank loans used to mature in a week.

According to a central bank circular to BFIs, they can use such loans only for liquidity management such as maintaining the cash reserve ratio and giving back deposits to depositors. Borrowers of such loans cannot make lending until such loans are repaid. They should repay all such loans by mid-July 2012, according to NRB. “We opened the fifth window so that BFIs facing acute liquidity crunch can get some financing,” said Bhaskarmani Gyawali, spokesperson for NRB.

The central bank’s other four windows include repo, refinancing, special refinancing and lender of last resort policy.

As finance companies are facing serious liquidity pressure, the latest NRB move has brought them some comfort. “We believe this NRB move will rescue most FIs,” said Rajendra Man Shakya, president of Nepal Finance Companies’ Association.

However, whether lender BFIs would offer loans will be based on their assessment about BFIs seeking loans. “The main problem is the crisis of confidence among BFIs, and NRB has not addressed this issue,” said Ashoke Rana, president of Nepal Bankers’ Association.

Finance companies are hit hardest by the liquidity crunch in recent days after the central bank and other institutional depositors started withdrawing their deposits.

BFIs usually conduct inter-bank transactions on the basis of trust and sometimes they demand treasury bills as collateral. Despite opening the door for the central bank funding, NRB has been encouraging BFIS to manage funds themselves. However, due to the deficit of trust caused by problems in some FIs, lender BFIs are hesitant to provide loans.



Posted on: 2011-06-28 08:56

http://www.ekantipur.com/2011/06/28/top-story/nrb-eases-inter-bank-lending/336413.html