Commercial banks top investors in govt securities


Commercial banks are the number one investors in the government securities with over 60 percent of the total securities purchased by the commercial banks.

By the end of the last fiscal, the commercial banks have held securities worth Rs 128.98 billion out of Rs 209.12 billion issued by the government in the form of treasury bills, development bonds, and citizens saving bonds, national savings bond, special saving bonds and foreign employment bonds. These are the instruments, through which the government raises internal loans to finance the deficit budget. The commercial banks have mainly invested in development bonds, treasury bills and special bonds.  

Likewise, the Nepal Rastra Bank (NRB) also has a significant holding, with 13.5 percent of the total securities issued amounting to Rs 28.22 billion in the form of development bonds, treasury bills, citizen saving bond and national saving bonds. Third on the chart are the insurance companies with a holding worth Rs 11.25 billion, which is 5.38 percent of the total issued. 

Among the government securities, treasury bills are the biggest source of raising internal loans for the government with 62.94 percent contribution to the total domestic debt, followed by development bonds with  a contribution of 27.50 percent.Similarly, national saving bond contributes 7.49 percent. However, the share of foreign employment bonds have remained insignificant at only 0.007 percent in total domestic debt.

Rates on treasury-bill, however, have been pretty low ranging from 0.0091 to 2.2 percent. According to the NRB, interest rate on 28-day treasury bill is 0.0091 percent whereas interest rate on 364-day treasury bill is 2.2 percent.       

Despite the very low yields, commercial banks are investing on treasury-bills due to lack of other investment avenues and large sum of ideal funds at their vaults, according to bankers. “Yield on treasury bill is pretty low but we have been investing on it as we do not have other investment avenues,” said Sashin Joshi, CEO of NIC Bank. Beside serving as debt instrument for the government, treasury bills also act as the monetary instruments for the central bank through which it injects liquidity and absorbs from the market. The government usually uses this investment tool of short-term nature tool to rollover the repayment deadline whenever its maturity period arrives.

 “Majority of the fund that commercial banks possess are not of long-term nature,” said B N Gharti, deputy general manager of Kist Bank. “That’s why the commercial banks are more into treasury bill rather than other government securities which generally have longer maturity period.”

 State-owned banks are front runners when it comes to investing in treasury bills. Rastriya Banijya Bank alone has purchased 15.95 percent of the total treasury bills, while Agriculture Development Bank has 7.02 percent.


Posted on: 2012-08-05 08:44