KATHMANDU, MAR 04 -

Most of the 10 banks supervised by the Nepal Rastra Bank (NRB) were found to have mismanaged liquidity (cash) resulting in liquidity crisis in the banking system.

Despite the central bank injecting Rs. 23 billion through repo (NRB giving cash to

banks by purchasing their treasury bills), the liquidity crunch

in the banking system has

not eased.

The central bank had carried out special supervision of 10 banks including Laxmi, Kumari, Machhapuchhre, Nepal SBI, Everest, Global, Kist, Sunrise, DCBL and Nepal Credit and Commerce Bank about 2 months ago to look into their liquidity management..

"Most of them failed to manage liquidity properly," said a senior NRB official. "But, most of them however followed the Basel II guidelines with some shortcomings."

The central bank had looked into banks allocating adequate money received from savings and current deposits for liquidity prevalence. The banks were found using such deposits how they liked, according to NRB supervision.

In its unified directive, NRB has instructed banks and financial institutions to put certain portion of deposits received through current and saving accounts for the purpose of prevailing liquidity with them on the basis of past experiences. They are required to maintain that portion of liquidity with the banks for more than a year period.

Likewise, the NRB also found that the banks lending were not as per the liquidity situation of the bank creating a huge gap between deposit and lending. According to the latest NRB report, the commercial banks' credit and deposit ratio (C/D) ratio stands at 88 percent.

"Most of the banks think that maintaining cash reserve ratio (CRR) is adequate for liquidity management as directed by NRB," the official said. "But, it is necessary to adopt best practices beyond regulation."

Chief executive officer of Sunrise Bank Suman Neupane said that his bank was managing liquidity properly as per the NRB guideline and it was now in position to lend in inter bank transactions. "I can not say about the position of other banks but our bank has maintained liquidity properly," he said.

The banks were also found not being careful to the risk of default in their issuance of bank guarantee and letter of credits. Regarding Basel-II, all the banks were found to have maintained capital adequacy ratio that should be positive by 10 percent.

NRB officials said they were also supervising the liquidity management of other banks

and how they followed the Basel-II guidelines.

Posted on: 2010-03-04 09:06

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