Surplus liquidity pulls T-Bills rate to historic low
KATHMANDU, NOV 18:
The banks and financial institutions will either have to invest in low interest yielding Treasury Bills (T-Bills) or to look for higher interest yielding new projects for financing to utilise the excess liquidity.
The interest rates on Treasury Bills are hovering at a historical low in the recent history since last few years. “Though 91-day Treasury Bills’ interest yield is at one per cent lately, there is no doubt that it will be still the best option for banks and financial institutions to invest surplus liquidity in,” according to spokesperson for Nepal Rastra Bank (NRB) Bhaskar Mani Gyanwali.
Instead of yielding under the pressure of the banks, central bank has decided to issue Treasury Bills and development bonds to absorb the excess liquidity in the financial system at present.
“Nepal Rastra Bank (NRB) will issue government securities — Treasury Bills and development bonds worth Rs 14 billion within next month — of which Treasury Bills worth Rs 9 billion will be issued,” informed Gyanwali.
There are 28-day, 91-day and 365-day Treasury Bills based on their maturity among which 91-day Treasury Bills are the most traded one.
The coupon rate of bonds have seen quite a surge in last year as the latest national savings bond issued by the central bank yielded 10 per cent interest rate. The increasing interest rate had prompted the central bank to increase the coupon rate accordingly to make the bonds more marketable. However, Treasury Bills rates being short term reacts to the market situation immediately that is why it is declining as banks and financial institutions started to get comfortable regarding liquidity.
The financial sector that was suffering through liquidity problem is now infused with surplus as the deposits have started to grow while lending did not expand much in the comparison. The commercial banks at present have about Rs 40 billion in surplus that can be funded.
“The banks and financial institutions do not have much choice for investment right now, either finance productive sector loans or invest in government securities,” president of Nepal Financial Institution Association Rajendra Man Shakya, pointed out, adding “if the financial institutions want more income then they have to look for viable projects to invest in as government securities will not yield higher income.”
The central bank is refraining from conducting reverse repo to direct the surplus funds to more productive sector as reverse repo might freeze the funds due to easy income by selling existing securities to Nepal Rastra Bank (NRB). However, the bankers have lamented the absence of viable new projects to finance.
Source: THT
