Banks seek NRB financing facility as liquidity tightens

Published On: January 5, 2017 12:10 PM NPT By: Sagar Ghimire  | @sagarghi

KATHMANDU, Jan 5: Running out of funds to extend new loans due to liquidity crunch, banks are now turning up to Nepal Rastra Bank (NRB) for financing facility. 

In a meeting with Nepal Rastra Bank (NRB) Governor Chiranjibi Nepal, along with other senior central bank officials, on Monday, Nepal Bankers' Association (NBA), the umbrella organization of commercial banks in the country, requested the central bank to provide them refinancing facility for addressing the mismatch in deposits and loan growth. 

At a time when banks are struggling to mobilize deposits due to sluggish capital spending and drop in remittances flow, credit growth is picking up with improvement in country's economic outlook. Foreign workers' transfer has been one of the major sources of deposit for banks while the government spending also pumps money into the banking system.

However, remittances growth has been taking a dip in the past few months while a huge amount of money is lying idle in the government's vault in the central bank due to dismal capital expenditure.

Worried with the shortage of funds for lending that is likely to hit economic growth, bankers have urged the central bank to find a solution immediately to end the 'short-term liquidity crunch'.

"We requested the central bank to provide us solution for the problem probably through refinancing facility for a certain period against the collateral of government securities that we hold," Bhuvan Dahal, an executive member of the NBA said. "We are not asking financing facility to provide loans on real estate, consumer and stock market. We want to make sure that the loan flow to the productive sector does not get stopped due to lack of fund," Dahal, who is also the CEO of Sanima Bank Ltd, said.

According to Dahal, the NRB is positive toward their demand. NRB officials have asked them to provide their suggestions in written form, he said. 

The NBA is sending an official letter to the NRB on Wednesday, outlining the possible solution to address liquidity crunch, Dahal added.

NRB officials, however, played down the problem. "We observe the overall banking situation every day. “Unlike their claims, there is no crunch of loan-able funds. It, however, is true that they are not in such a comfortable position as they used to be where there was excess liquidity," said Narayan Prasad Poudel, the spokesperson for NRB, told Republica. "If any individual bank faces such crisis, they can seek standing liquidity facility from the central bank," added Poudel, referring to an instrument which allows banks to borrow from the central bank whenever it faces liquidity crunch. 

While repo and standing liquidity facility are the options as part of open market operation to ease liquidity crunch, the short-term maturity (maximum seven days) of these instruments cannot help in easing such deposit and credit mismatch that is likely to continue at least until mid-April when the government spending starts increasing significantly, bankers say. 

The shortage of fund is likely to worsen further in mid-January as estimated deposits of Rs 50 billion will be withdrawn to file taxes. Even schemes of 10 percent interest rates on fixed deposits by banks have now failed to lure depositors, bankers complain.

Bankers say that they are also mulling over an option of requesting the government to provide them direct deposits instead of holding it in the central bank account. "As the government has not been able to increase capital spending, huge amount of government fund is lying idle in the central bank's vault. We are also thinking of requesting the Ministry of Finance to provide that money as deposits,” Kishore Maharjan, vice president of NBA, said. “It will generate some interest income for the government and also eases our problem.”

Leave A Comment