Inter bank lending on rise
KATHMANDU:
The financial market saw inter bank transaction jump by 47 per cent in the fiscal year 2010-11 from a year ago, as the banks have relied more on inter bank lending as a measure to tackle liquidity crunch. In the last fiscal year banks undertook interbank lending worth Rs 397.6 billion while in a fiscal year ago, it stood at Rs 268.85 billion among the banks and financial institutions to cover the shortfall in their liquidity, according to the Nepal Rastra Bank data.
Through inter bank lending banks extend loans to one another for a short term — about a week at a specified interest rate known as inter bank rate. The inter bank rate charged depends on the availability of money in the market, on prevailing interest rates and on the specific terms of the contract, such as term length.
“The central bank encourages the banks and financial institutions to resort to inter bank lending for prompt management of liquidity,” central bank spokesperson Bhaskar Mani Gyanwali, said pointing that inter bank lending is the best short-term liquidity management tool as the needy ones can borrow and the banks and financial institutions with surplus cash on hand can lend earning interest. The central bank has even allowed banks and financial institutions to conduct inter bank lending for as long as six months against the collateral of good loans to ease up the intensifying liquidity crunch and distrust among the banks and financial institutions two months ago issuing a directive after they faced an acute liquidity crunch.
Lately, the inter bank rate reached as high as 12 per cent as the banks and financial institutions grew distrustful of each other due to the instances of few financial institutions going bad-some even refused to lend. The central bank also intervened to nip the imminent crisis by providing option of taking collateral against lending among banks and financial institutions. “The pledge of good loans against borrowing will allow the lending bank to manage the risk encouraging them to lend with out much apprehension for longer term.”
The banks and financial institutions prefer inter bank lending more than the repo to acquire more cash in the short term due to convenience. The central bank injected the liquidity of Rs 92.3 billion in the financial system through repo auctions by pledging the short term securities to the central bank, in last financial year.
“The banks can borrow among each other at their own convenience by negotiating on inter bank rate sans the need of pledging collaterals, while to bid in repo auctions banks have to pledge the government securities to obtain the financial support, making the former more popular,” he sad.
The inter bank lending has steadily been rising since the last four fiscal years as the liquidity crisis continued to deepen forcing the banks and financial institutions to depend on inter bank lending to manage short-term liquidity. Inter bank lending has surged by 300 per cent from Rs 113 billion in fiscal year 2003-04 to Rs 397 in the fiscal year 2010-11.
Source: THT
The financial market saw inter bank transaction jump by 47 per cent in the fiscal year 2010-11 from a year ago, as the banks have relied more on inter bank lending as a measure to tackle liquidity crunch. In the last fiscal year banks undertook interbank lending worth Rs 397.6 billion while in a fiscal year ago, it stood at Rs 268.85 billion among the banks and financial institutions to cover the shortfall in their liquidity, according to the Nepal Rastra Bank data.
Through inter bank lending banks extend loans to one another for a short term — about a week at a specified interest rate known as inter bank rate. The inter bank rate charged depends on the availability of money in the market, on prevailing interest rates and on the specific terms of the contract, such as term length.
“The central bank encourages the banks and financial institutions to resort to inter bank lending for prompt management of liquidity,” central bank spokesperson Bhaskar Mani Gyanwali, said pointing that inter bank lending is the best short-term liquidity management tool as the needy ones can borrow and the banks and financial institutions with surplus cash on hand can lend earning interest. The central bank has even allowed banks and financial institutions to conduct inter bank lending for as long as six months against the collateral of good loans to ease up the intensifying liquidity crunch and distrust among the banks and financial institutions two months ago issuing a directive after they faced an acute liquidity crunch.
Lately, the inter bank rate reached as high as 12 per cent as the banks and financial institutions grew distrustful of each other due to the instances of few financial institutions going bad-some even refused to lend. The central bank also intervened to nip the imminent crisis by providing option of taking collateral against lending among banks and financial institutions. “The pledge of good loans against borrowing will allow the lending bank to manage the risk encouraging them to lend with out much apprehension for longer term.”
The banks and financial institutions prefer inter bank lending more than the repo to acquire more cash in the short term due to convenience. The central bank injected the liquidity of Rs 92.3 billion in the financial system through repo auctions by pledging the short term securities to the central bank, in last financial year.
“The banks can borrow among each other at their own convenience by negotiating on inter bank rate sans the need of pledging collaterals, while to bid in repo auctions banks have to pledge the government securities to obtain the financial support, making the former more popular,” he sad.
The inter bank lending has steadily been rising since the last four fiscal years as the liquidity crisis continued to deepen forcing the banks and financial institutions to depend on inter bank lending to manage short-term liquidity. Inter bank lending has surged by 300 per cent from Rs 113 billion in fiscal year 2003-04 to Rs 397 in the fiscal year 2010-11.
Source: THT
