KATHMANDU, JAN 05 - Nepal Rastra Bank (NRB) has initiated, for the first time, a special inspection of commercial banks to ascertain whether they are following the Basel-II guidelines launched last year and how they are managing the liquidity. About a dozen banks, including KIST, Kumari, Machhapuchhre, Nepal Credit and Commerce, and Nepal SBI, would be supervised initially, said a NRB source.

Under the Basel-II, the banks are required to implement risk management policies that align capital adequacy assessment with underlying credit risk, market risk and operational risks. It was introduced for the protection of depositors' interest by preserving the integrity of capital in banks. Every bank should maintain capital requirement of not less than 10 percent of total risk weighted exposure, as per the guidelines. Basel committee representing the governors of the world's central banks issued Basel-II in 2004. It was revised in 2005.

If banks are found not abiding by the guidelines, they are required to manage additional capital for the associated risks. "That means, they will not be able to provide enough dividend to their shareholders," said the NRB source. "Given the banking system facing liquidity crunch for longer period, we also decided to see how the banks were managing the liquidity," said the official.

The central bank has already issued directive to the commercial banks to analyze gas liquidity availability and manage them effectively. "We have already sent them a detailed outline of what information they are required to send back to us regarding liquidity management," said the source.

The official said that the NRB would take appropriate steps to address the liquidity crunch after analysing information on banks' approach to liquidity management. The central bank has already capped the lending in real estate sector amid speculation that the increased lending in real estate sector was one of the major factors behind liquidity crunch.

Chief Executive Officer of Kumari Bank Radhesh Pant said the NRB officials on Sunday started looking into whether his bank was following the Basel-II guidelines and the status of liquidity management. He said that the banks were following the international norms rigorously.

With regard to liquidity, he said that banks were in position to stop lending due to cash crunch and that higher interest rates would be a disaster for the industries in terms of their competitiveness.

Slowed remittance, increased imports of gold and the government's failure to spend development budget and capital flights are responsible for current liquidity crunch. "The NRB should provide liquidity in an easier way to address this crisis as immediate measures," he said. It is the special supervision of the central bank although it carries out regular supervision of banks.

 

Posted on: 2010-01-09 03:27

Post Your Comment

Please note that all the fields marked * are mandatory.
* Full Name
* Address
* Email Address
* Comment
* Captcha	Get another CAPTCHA code
Note:	Comments containing abusive words or slander shall not be published.