Nepal Rastra Bank Publishes Lender of Last Resort (LOR) Facilities; Now 2% Points Will Be Added To The Penal Rate From the Current Bank Rate

In accordance with Section 79 of the Nepal Rastra Bank Act, 2058, the "Nepal Rastra Bank Lender of Last Resort Policy, 2067" issued by Nepal Rastra Bank has been repealed and modified, and "Nepal Rastra Bank Lender Facility Regulations, 2079" has been published.

NRB will act as the final lender and provide the necessary loan if the licensed institution is unable to manage the required liquidity through the interbank market, daily liquidity facility, open market transactions, and permanent liquidity facility, if there is a chance that systemic risk will be created, and if doing so will undermine public confidence in the banking system. The central bank claims that the introduction of this rule is intended to preserve financial stability.

The loan's interest rate will be set up in a manner that adds 2 percentage points to the penal rate from the current bank rate as the last creditor facility. The bank will have up to six months to accept this option. The adherence to the rules established for the licensed institution using the Lender of Last resort will be monitored on a regular basis.

If the banks are unable to secure the required liquidity through the interbank market, daily liquidity facility, open market transactions, and permanent liquidity facility, they may use the last lender facility, per the regulation's rule.

According to the Central Bank, if the Lender of Last resort is unable to meet its duties in one or more instances, the Board of Directors of the licensed institution may request the National Bank for the Lender of Last resort. This option is available if the licensed institution lacks the marketable assets necessary to meet its immediate responsibilities or if a sizable deposit has already been made or needs to be made.

This facility is still available even if the company fails to deliver the promised loan and this has a negative effect on the economy, or if a situation arises where a systemic risk is created as a result of the issues or consequences of one of the licensed companies leading to the failure of other strong companies.

This option is available in cases where the institution is unable to settle its debts, when public confidence in the banking system may be at risk, or when a natural disaster prevents the licensed institution from meeting its immediate obligations.

This option is also available if the licensed organization is unable to meet its immediate obligations because of the uncomfortable circumstances brought on by the state of the nation and the world. If the organization is unable to meet its obligations and is put into liquidation, it may pose a problem for the economy and financial system.

Only if the licensed institution's board of directors is confident in the action plan submitted to revive the licensed institution and the licensed institution can run smoothly over the long term will the licensee be deemed eligible for the lender of last resort facility.