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Excess liquidity Comes Under Control

  1 min 40 sec to read

April 18: Excess liquidity in the banking system has come under control. Increase in the interbank lending rate has indicated the improvement of the situation. The interbank lending rate has now reached the highest level in the last six months.

According to the Nepal Rastra Bank (NRB), the rate is 2-3 percent since April 11. “Commercial banks were charged 2.93 percent while it was up to 3.71 percent for the development banks on April 17,” informs Shiva Nath Pandey, Executive Director of NRB.  The weighted average interest rate on such loan was 3.33 percent in October 2. Over the past six months, such interest rate was below 1 percent.

Increase in interbank lending rate shows lack of excess liquidity in banking system and growth in loan investments of the banks. “NRB has absorbed Rs 100 billion liquidity of BFIs, so there is no excess liquidity in the market,” says Dr Min Bahadur Shrestha, Executive Director of Public Dept Management of NRB.

“Although Rs 40 billion invested in the further public offering (FPO) of Nepal Investment Bank Limited (NIBL) has returned to banking system, Rs 30 billion of that amount was earlier used in tax payment in mid-April, thus there is no excess liquidity in the market,” says Bhuwan Dhahal, CEO of Sanima Bank. He signaled that banks’ lending interest rate might also increase with the growth in loan investments and decline in excess liquidity.

“Interest rate in bank loans in some ‘segments’ is rising,” he says.  He informs that banks are charging modestly high interest rates than earlier to creditors who are on ‘row over’. According to the bankers, there is a possibility of increase in interest rates in the April-May period. Nevertheless, bankers estimate of higher liquidity by mid-May due to the increase of the government’s capital expenditure.   

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