Return on NRB's reverse repo increases

KATHMANDU:

The returns on reverse repo offered by the central bank have improved this time around though financial institutions are still facing a difficult time disposing their surplus funds more profitably.

In the latest round of the 14-day reverse repo, Nepal Rastra Bank (NRB) received bids for securities worth Rs 29.47 billion from 23 financial institutions for a reverse repo worth Rs 19.4 billion, informed spokesperson of NRB Bhaskar Mani Gyanwali.

The continued surplus liquidity with the financial institutions had compelled the central bank to increase the size and duration of the reverse repo. “The weighted average reverse repo rate for this round stood at 0.0791 per cent,” Gyanwali added.

Financial institutions subscribing to the central bank’s latest round of reverse repo have got

a little better return than those who had subscribed in the previous batches.

This time, by lending Rs 1.2 billion to NRB, a bank will earn Rs 2641.18 as interest per day based on the rate structure of the recent reverse repo. During the fifth round of the reverse repo held a week back, average weighted reverse repo rate stood at 0.0166 per cent — the lowest ever. Reverse repo is a liquidity absorbing instrument of central banks. They accept deposits from banks against a collateral of securities with the central bank at a certain rate and for a certain period of time. “We have increased the size and period of the repo based on the market scenario and the rates are also market determined,” informed Gyanwali.

The prolonged liquidity surplus seems to have started to get to NRB as well since it almost doubled the size and time period.

In the last round of reverse repo held last week, the weighted average reverse repo rate stood at 0.02 per cent. Excess liquidity is supposed to put pressure on inflation and aid capital flight.

Though the reverse repo rate has increased, banks still are haunted with lack of credit while deposits keep piling up. As of last week, each commercial bank had excess loanable funds worth Rs 2.3 billion on average, sitting idle in their vaults.

According to Nepal Bankers’ Association statistics, there is about Rs 72 billion worth of excess liquidity among commercial banks.

Deposits at banks stand at Rs 1075, while lending stands at Rs 789

billion. Banks have to keep 20 per cent of their deposits in liquid funds according to NRB regulations, but they have 26.6 per cent of the total deposit in liquid form — 6.6 per cent are not yielding any return so they are considered dead assets.

Furthermore, the yields on alternative instruments — that can bring returns to the financial institutions such as treasury bills, interbank lending and bonds — have also plunged below one per cent since the last six months.

Source: THT