KATHMANDU, Feb 12: Nepal’s banks and financial institutions have started facing a decline in excess liquidity with the government collecting excessive internal borrowing and due to an increasing demand for loans from the business community with falling cases of the coronavirus infection.

According to Nepal Rastra Bank (NRB), banks now have an excess liquidity of Rs 77.31 billion, which used to stand at more than Rs 200 billion just two months ago. With this reason, pressure has developed on the interest rate of loans issued by the banks.

Recently, the cases of coronavirus infection have come down to a double-digit figure per day while the daily new death case has also fallen to almost zero. Due to this reason, banks have been sustaining soaring demands for credit. On an average, banks have been lending around Rs 20 billion almost every week, according to bankers.

In addition, the government has also been aggressively raising public debt to manage its financial liabilities that have swollen due to the upcoming midterm polls and spending on the import of COVID-19 vaccines. The government has targeted to collect over Rs 100 billion from internal borrowing this year.  

NRB officials said the impact of these measures is being seen on the interbank rate, which is slowly rising.

Nara Bahadur Thapa, former executive director of the NRB, termed the fall in liquidity as a positive sign for the economy. “Both lending by the banks and borrowing by the government help utilize the country’s financial resources, ultimately stimulate economic activities in the COVID-19-hit economy,” Thapa said to Republica.     

 
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