China doubles Nepal's quota for investment; NRB's quota 2.4b renminbi in debt instruments
KATHMANDU, June 26: The Chinese central bank has allowed Nepal to double its investment in Chinese government securities, paving the way for Nepal Rastra Bank (NRB) to put more cash in secure debt instruments, like bonds, issued by the neighbouring country.
The permission was extended following a request made by NRB Governor Yubaraj Khatiwada. “We will soon sign an agreement with the People’s Bank of China (the Chinese central bank) in this regard,” Governor Khatiwada told The Himalayan Times.
Nepal is currently allowed to invest up to 1.2 billion renminbi (approximately Rs 18.59 billion) in Chinese government securities per year.
With the upward revision in the ceiling, the government will be allotted an annual quota of 2.4 billion renminbi for investment in instruments like renminbi-denominated bonds floated by the world’s second largest economy.
Nepal had started investing in Chinese government securities from last year following signing of a memorandum of understanding between NRB Deputy Governor Gopal Prasad Kaphle and People’s Bank of China Deputy Governor Hu Xiaolian.
The agreement was signed when the country was looking for avenues to diversify its foreign investment portfolio.
As of now, NRB has put money in government securities floated by countries like India and the United States, among others. Last fiscal, NRB had invested Rs 14.25 billion in the US government treasury bills and Rs 107.43 billion in treasury bills floated by the Indian government.
From these investments, the central bank earns billions of rupees every year, of which around Rs nine billion comes from India alone. As a result, NRB’s net profit in the last fiscal year stood at Rs 23.17 billion, as per its audited financial statement for fiscal 2012-13.
If the central bank is able to invest up to 2.4 billion renminbi per year in Chinese securities, it is expected to earn up to Rs 1.5 billion per annum, considering yields of close to four per cent that these debt instruments generate.
NRB is currently said to be purchasing Chinese bonds with a maturity period of six months to three years, although options are open for investment in bonds of longer maturity period.
The return on six-month and three-year Chinese government bonds stood at 1.77 per cent and 3.73 per cent this month, respectively, as against 0.05 per cent and 0.93 per cent generated by US securities of similar maturity periods.
(Source: THT)
