Due to some financial institutions, public trust declined on all institutions
Bankers asked the government to address the current crisis in the money market through Fiscal Policy and Monetary Policy, apart from building public trust, timely budget and its implementation.
"The current measures of the central bank are short-term measures that have only postponed the crisis, not solved it," said Nepal Bankers Association (NBA) Ashoke Rana.
The central bank has brought measures -- refinancing, twice a week repo, Lender of the Last Resort and interbank lending against good loan -- to address current tight liquidity situation.
However, public trust, timely budget and its implementation, and real estate rollover are key to solution to the current problem, he said, adding that the fluid political situation has declined public confidence on government, let alone on the financial institutions.
"Timely budget implementation and real estate rollover will inject the liquidity in the financial institutions," Rana said.
Due to some financial institutions, public has lost faith on financial system as a whole, he said, adding that not only development banks and finance companies, the commercial banks are also under stress.
Supporting Rana, Nepal Development Bankers' Association president Jhapat Bohara said that the central bank should be pro-active. "The central bank can solve the current problem through Monetary Policy and can suggest the government to address it through budget," he said.
"Some of the institutions went bust due to lack of governance," he said, adding that the development banks headquartered in outside the Kathmandu valley are in comfortable position as they are nor dependent on institutional depositors. "Over dependency on the institutional depositors also invited the current tight liquidity situation," Bohara added.
But the current crisis has taught us a lesson, he said, adding that failure of risk mitigation plan, assets-liability mismatch and lack of vision coupled with plummeting real estate and capital market hit the financial institutions hard where it hurts most tightening the liquidity situation.
He also suggested taking action against those who misused public deposit to restore public confidence on financial institutions.
"Due to some institutions, people lost confidence on overall financial system," said Nepal Finance Company Association president Rajendra Shakya."Since depositors are also under stress, the central bank should show its presence," he said, adding that the whole economy will collapse, if the financial institutions continue to go bust one by one.
Liquidity easing
KATHMANDU: The central bank governor has assured that the tight liquidity situation is easing as deposits with the banks have increased substantially in the last few months. "The latest data with Nepal Rastra Bank (NRB) revealed that commercial banks hold Rs 655 billion as deposit," NRB governor Dr Yubaraj Khatiwada, said adding that in the eleventh month alone deposits have grown by Rs 6 billion. "Along with the commercial banks, deposits of development banks and finance companies also increased by about Rs 10 billion each class," he said, at an interaction programme organised by NRB's Banker Training Center. Governor also assured bankers that there is no crisis in the financial sector and whatever problems existed is heading towards correction. "The inter-bank rates that used to be as high as 12 per cent has come down to about seven per cent demonstrating the increasing liquidity," he said, adding that the growing numbers of crisis-ridden financial institutions should be closed down to make a better financial environment if need be.
Interest rates to go down
KATHMANDU: Good news for the borrowers. Commercial banks are planning to cut the interest rates as they have been observing growth in their deposits in recent weeks. “The borrowers are complaining of high interest rates that increased their cost of production making them loose competitive advantage,” said Nepal Nankers Association (NBA) president and Himalayan Bank CEO Ashoke Rana. He said that the rates might be reduced by one percentage point. Banks have already slashed the deposit rates by 0.5 percentage point for the institutional depositors. The lending rates went up due to high deposit rates in the recent months due to tight liquidity situation. “The central bank also encouraged us to increase deposit rates to attract depositors but the idea did not work,” he said, adding that the depositors want security of their hard earned money not the high interest rates. Due tight liquidity situation, the banks started hiking deposit rates naturally pushing the lending rates too hurting the manufacturing sector.
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