Saturday, February 26, 2011

Bankers urge for expediting capital expenditure to ease liquidity crunch

Bankers have again urged the government to expedite capital expenditure and park revenue surplus with government-owned banks, if not possible with the private commercial banks, instead of keeping with central bank itself to ease the current liquidity crunch.
"The government should expedite capital expenditure," said past president of Nepal Bankers Association (NBA) and NIC Bank CEO Sashin Joshi.
On one hand the government is mobilising encouraging revenue and on the other the banks are facing liquidity crunch due to government's inability to spend it. "The government budget has remained at a surplus of Rs 22.42 billion," according to the central bank's macroeconomic report for six months of the current fiscal year.
"A high growth of revenue mobilisation relative to total expenditure accounted for such a government budget surplus," the report said, adding that in the same period of last fiscal year, the budget surplus stood at only Rs 10.16 billion.
"Apart from speedy government expenditure, the central bank could also start maintaining some of its accounts with commercial banks as a short-term measure," suggested NMB Bank CEO Upendra Poudel.
The revenue that stood at Rs 91.33 billion in the first six months of the current fiscal year has increased to Rs 107.67 billion till mid-February, the first seven months of the current fiscal year."If government start parking revenue surplus with government-owned banks only -- if not posible with the private commercial banks -- instead of with the central bank itself, the liquidity tight situation could ease," Joshi said, adding that the central bank can also issue repos under 'tap' at fixed interest rates so that banks can access funds against pledge of government securities they have, as and when required.
"The banks -- maintaining their Statutory Liquidity Ratio (SLR) -- can sell development bonds, if the central bank buys, to ease the liquidity crunch at present," Poudel said, adding that it will help not only ease liquidity to some extent but will also help build help market confidence without pressure from hiking rates.
SLR is the amount a commercial bank needs to maintain in the form of cash, or gold or government approved securities (bonds) before providing credit to its customers.
According to the central bank, total government spending decreased by 6.3 per cent to Rs 80.85 billion in the six months of current fiscal year compared to an increase of 31.8 per cent in the same period of the last fiscal. It attributed the negative growth rates on both recurrent and capital expenditure due to decline in the government expenditure.
"The recurrent expenditure declined by 1.3 per cent to Rs 59.87 billion against an increase of 40.2 per cent in the same period last fiscal year," it said, adding that capital expenditure declined by 15 per cent to Rs 8.97 billion against an increase of 33.9 per cent in the same period last year.
The central bank has also blamed delayed annual budget for the decline in growth of recurrent and capital expenditures.
"If the liquidity crunch is not addressed, slowly it will lead to credit crunch as the banks have no fund for the new loans except for the old commitments," said vice-president of Nepal Bankers Association (NBA) and Citizens' Bank International CEO Rajan Singh Bhandari.
According to the central bank's data, the deposit of the commercial banks stands at Rs 627.08 billion by the second quarter of the current fiscal year -- an increase of Rs 7.58 billion -- from the first quarter, when the deposit stood at Rs 619.49 billion.Contrary to Rs 7.58 billion increase in deposit mobilisation, lending has increased by three fold to Rs 21.11 billion in a single quarter.
"The lending has increased also due to previous commitments," Bhandari said.
"Overall the financial system must regain public confidence," chairman and chief executive of Nepal Investment Bank Prithvi Bahadur Pandé said, adding that the financial sector should launch a massive campaign to build confidence of public that the deposit disclosure is an international obligation and Nepal has to follow it.

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