Liquidity In Banking System Under Pressure | Interbank Rates On The Rise
June 18, 2021 | Investopaper
The excess liquidity in the banking system has come down sharply in the recent weeks. Market liquidity is under pressure as the government is raising internal debt. At the same time of the last fiscal year, banks and financial institutions had about Rs 200 billion liquidity. According to NRB, there is only around Rs 21 billion more liquidity in the financial system till Tuesday.
This amount also includes the SLF facility taken by banks and financial institutions from NRB. The amount taken through SLF should be returned after one week. BFIs have to avail Sustainable Liquidity Facility (SLF) from NRB to maintain loan-to-deposit-capital (CCD) ratio. Banks have also stopped getting inter-bank loans due to lack of money. Interbank interest rates rose to 4.7 percent on Tuesday.
As liquidity declines, banks’ CCD ratios are also under pressure. According to the NRB, the average CCD ratio of banks was 80 percent. According to the current directive, banks can disburse loans up to 85 percent of the loan-to-deposit ratio.
Chairman of the Bankers’ Association Bhuvan Dahal, on the other hand, said that the banks and financial institutions have sufficient funds for the flow of credit even though the liquidity in the banks has decreased for the time being. He said banks have invested around Rs 60 billion in government securities in the last two to three weeks, which has led to a lack of liquidity.
This problem will be solved soon as government expenditure will increase in the last month of the current fiscal year.
