Cost of fund for banks shoots up
KATHMANDU, May 9:
The tight liquidity situation has translated into rising cost of fund for banks.
Of the eight commercial banks that have published their unaudited financial reports for the third quarter of the current fiscal year revealed that cost of fund in this quarter has increased in comparison to that of the corresponding quarter of the previous fiscal year.
In the third quarter, the cost of fund for these eight commercial banks has reached 7.7 per cent that was at 6.8 per cent in the same period of last fiscal year.
“The cost of fund increases due to internal reasons of the particular BFI such as how much are they paying to their top executives and so on,” said Bhaskar Mani Gyanwali, spokesperson for the central bank.
“The banks have to control their overall expenditure in order to curb increasing cost of fund, increased bank rate and repo rate are only partly accountable,” he added.
The cost of funds is the interest cost that a financial institution must pay for the use of money. Since the banks are, currently offering higher interest rate to the depositors to attract deposits, the cost of fund is natural to shoot up, a banker said, adding that with the increased competition also banks and financial institutions are extending their branch network to tap possible customers surging their operating cost. “However, the business that new branch can bring in might not be even at break even to the additional cost incurred.”
Along with increment in operating cost, the increasing bank rates and interest on government securities, especially of treasury bills which are used for repo and reverse repo auctions by the central bank can be accounted for increased cost of funds.
Due to poor liquidity, the banks have to resort to other measures for raising funds besides deposits since the rate of growth of deposits is not much in comparison to the increment in lending.
The banks are raising the necessary funds that their deposit base is unable to cover for lending in the short term by pledging the securities they possess to Nepal Rastra Bank through repo auction and through borrowing among other Banks and Financial Institutions.
The inter-bank rate has also reached 8.45 per cent in the third quarter, making borrowing within the banking system a costly affair for the banks. The inter-bank transaction of commercial banks crossed Rs 252.70 billion during the first eight months of the current fiscal year compared to Rs 188.54 billion of the corresponding period last year.
In the first two months of the third quarter, the central bank injected net liquidity of Rs 23 billion against the securities offered by the Banks and Financial Institutions. In the eight months of the current fiscal year, the central bank injected liquidity of Rs 41.80 billion through repo auction.
Source: THT
The tight liquidity situation has translated into rising cost of fund for banks.
Of the eight commercial banks that have published their unaudited financial reports for the third quarter of the current fiscal year revealed that cost of fund in this quarter has increased in comparison to that of the corresponding quarter of the previous fiscal year.
In the third quarter, the cost of fund for these eight commercial banks has reached 7.7 per cent that was at 6.8 per cent in the same period of last fiscal year.
“The cost of fund increases due to internal reasons of the particular BFI such as how much are they paying to their top executives and so on,” said Bhaskar Mani Gyanwali, spokesperson for the central bank.
“The banks have to control their overall expenditure in order to curb increasing cost of fund, increased bank rate and repo rate are only partly accountable,” he added.
The cost of funds is the interest cost that a financial institution must pay for the use of money. Since the banks are, currently offering higher interest rate to the depositors to attract deposits, the cost of fund is natural to shoot up, a banker said, adding that with the increased competition also banks and financial institutions are extending their branch network to tap possible customers surging their operating cost. “However, the business that new branch can bring in might not be even at break even to the additional cost incurred.”
Along with increment in operating cost, the increasing bank rates and interest on government securities, especially of treasury bills which are used for repo and reverse repo auctions by the central bank can be accounted for increased cost of funds.
Due to poor liquidity, the banks have to resort to other measures for raising funds besides deposits since the rate of growth of deposits is not much in comparison to the increment in lending.
The banks are raising the necessary funds that their deposit base is unable to cover for lending in the short term by pledging the securities they possess to Nepal Rastra Bank through repo auction and through borrowing among other Banks and Financial Institutions.
The inter-bank rate has also reached 8.45 per cent in the third quarter, making borrowing within the banking system a costly affair for the banks. The inter-bank transaction of commercial banks crossed Rs 252.70 billion during the first eight months of the current fiscal year compared to Rs 188.54 billion of the corresponding period last year.
In the first two months of the third quarter, the central bank injected net liquidity of Rs 23 billion against the securities offered by the Banks and Financial Institutions. In the eight months of the current fiscal year, the central bank injected liquidity of Rs 41.80 billion through repo auction.
Source: THT
