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Liquidity Crisis to Extend for Some More Time

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Liquidity Crisis to Extend for Some More Time

May 24: There are signs that the liquidity crisis in the banking system will likely extend for some more time. The liquidity crisis is unlikely to end anytime soon as the banks and financial institutions (BFIs) are reeling under shortage of investible capital with just two months left in the current fiscal year.

According to Nepal Rastra Bank (NRB), the deposit collection of BFIs increased by Rs 237.85 billion as of mid-April this year while the credit flow during this period was worth Rs 558.99 billion.

NRB officials have concluded that the liquidity crisis is a result of high credit flow against deposit collection and that most of the loans have been invested for importing consumable goods.

As the crisis started deepening, banks have started taking inter-bank loans and various monetary tools to address their immediate problems.

The short-term lending between banks increased by one and a half times between mid-March and mid-April.

As per the central bank, in the first nine months of the current fiscal year, the inter-bank loans taken by commercial banks stood at Rs 2299.22 billion while development banks and finance companies took inter-bank loans worth Rs 2069.68 billion during the review period.

During the corresponding period of last fiscal year, the inter-bank loans taken by commercial banks was worth Rs 875.50 billion while development banks and finance companies had received inter-bank loans worth Rs 1059.42 billion.

The liquidity crisis has also affected the inter-bank interest rate. Such interest rate has increased to nearly 7 percent. One year ago, the inter-bank interest rate was just 2.03 percent, which increased to 6.99 percent in mid-April.

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