Liquidity eases as depositors move to 'safe haven' banks

KATHMANDU, June 28: Leading commercial banks have witnessed a sudden rise in deposits, and this has resulted in a dramatic improvement in their liquidity position, as corporate depositors and the general public moved their savings from financial institutions to the banks, which they perceive as a ´safer haven´.



Officials at Nepal Bank Limited (NBL) said the bank has received deposits of well over Rs 800 million within a span of just four weeks. Nepal Rastra Bank (NRB) said a similar surge in deposits was seen at Standard Chartered Bank, Nabil Bank, Everest Bank, Rastriya Banijya Bank and Himalayan Bank as well.[break]



“Deposits at commercial banks have jumped by over Rs 6 billion in less than a month, and a major chunk of that has gone to about half a dozen big banks,” said an NRB source.



Although a few commercial banks still complain of tight liquidity, Ashok Rana, president of Nepal Bankers Association (NBA), said the recent inflow of deposits in general has eased liquidity in the banking system.



As a result, the average inter-bank lending rate last week remained low at less than 6 percent. It hovered at a similar level on Monday also.



“We are not sure the present stretch of deposits growth is sustainable,” said another NBA official. Besides, he attributed the low inter-banking rate to weak demand also. “In the absence of adequate liquidity, bankers had long denied loans to larger borrowers. So when the deposits actually came in, they had no big clients on hand,” he added.



The trend of deposits growth in commercial banks has surfaced particularly after Gurkha Development Bank, Nepal Share Market Finance, People´s Finance Limited and Capital Merchant Banking suddenly shut down operations and failed to repay depositors.



Vibor Bikas Bank also sought refuge with the central bank a few weeks ago, seeking liquidity support.



The confidence of depositors in financial institutions, particularly finance companies, has dipped so low that not just the general public but even leading corporate depositors have started withdrawing their savings and parking them in commercial banks.



“Worse still, even large and institutional depositors are withdrawing their fixed deposits prematurely. This has exerted severe pressure on the financial system as a whole,” said Rajendra Man Shakya, president of Nepal Finance Companies´ Association.



The withdrawals have been so massive, NRB says the deposits of financial institutions, including development banks and finance companies, have dropped to around Rs 165 billion from Rs 175 billion in mid-April.



“Clearly the joy of the banks has come at the cost of trouble for finance companies and a few development banks,” said the central bank officials.

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