KATHMANDU, NOVEMBER 23
There has been excess liquidity in the banking sector in the country for the past several months due to the decline in demand for loans. Liquidity in banks started to increase since the government imposed the nationwide lockdown in March. In fact, the amount of excess liquidity had reached as high as around Rs 200 billion in mid-April to mid-June, as per Nepal Rastra Bank (NRB).
“However, with the gradual increase in imports, lending is gradually picking up since mid-September due to which the amount of excess liquidity in banks is slowly dropping,” said Gunkar Bhatta, spokesperson for NRB.
According to him, NRB has also mopped up funds worth Rs 21.8 billion from banks to manage the surplus liquidity.
However, there is still around Rs 170 billion surplus liquidity in banks at the moment.
“Although NRB draws surplus funds from banks, it can only help solve the excess liquidity issue to some extent and also for a short period of time. Thus, the demand should come from the core business activities,” shared Sunil KC, CEO of NMB Bank.
Stating that the excess liquidity has been affecting the profitability of banks since the availability of limited investment opportunities decreases the income of banks, KC said, “This also increases competition among banks as they can sometimes lend money at high risk too.”
He further said that the issue of excess liquidity is likely to remain for some time as the impact of the COVID-19 still exists in the country with the number of infected people still rising. “However, the development of COVID-19 vaccines by international institutions has brought about some positive sentiments. So, once the impact of the coronavirus starts to wane, business a