Higher dependency on institutional depositors hits financial institutions where it hurts most

Higher dependency on institutional depositors hit the financial institutions hard as their withdrawal has tightened the liquidity situation recently.
"Most of the financial institutions that have institutional deposits have been in trouble recently," said past president of Nepal Development Bankers Association Jhapat Bohara.
"The development banks out of the valley are not that much in trouble compared to the ones in valley," he said, adding that it’s also a lesson to financial institutions that they have to have wider base and needs to go to the people and should not be dependent on institutional depositors.According to another banker, the trend of opening financial institutions started eyeing central bank and Nepal Army's institutional deposit.
“In the earlier days, most of the financial institutions found it easier to lure central bank and Nepal Army for institutional deposits," he said, adding that they presumed that the institutional depositors like Nepal Army and central bank will not withdraw their deposits.
“However, the concept was never guided by good intention and prudent banking practice," he added. “The financial institutions preferred institutional depositors to save the cost of going to the small depositors but in the long run the small depositors are the base of financial institutions."
Even Institutional depositors will one day withdraw their deposits and the financial institutions could be in trouble to manage Assets-Liability strategy. “But they failed in Assets-Liability management," he added.
Apart from central bank and Nepal Army, Citizen Investment Trust, Employees Provident Fund, Nepal Police, Nepal Stock Exchange, Securities Board of Nepal, Rastriya Beema Sansthan, and Nepal Telecom are some of the institutional depositors.
Some of the financial institutions also failed due to their poor corporate governance and taking high risk to get maximum profits overnight apart from higher dependency on institutional depositors.

Banking on big clients
Nepal Army – Rs 17.50 billion (93 per cent in commercial banks and seven per cent in development banks and finance company)
Employment Provident Fund – Rs 80 billion
Citizen Investment Trust – Rs 15 billion
Nepal Telecom – Rs 15.51 billion (By the third quarter. Nepal Telecom distributed 40 per cent cash dividend to its shareholders. The government absorbed Rs 5.48 billion from banks and the public got Rs 512 million in cash dividends.)