Liquidity crunch
in Nepal
Liquidity
Crunch or Liquidity Crisis or Credit Crisis is the situation where the demand
for the cash is high than the supply resulting to high rate of interest on
deposits as well as lending part. Though there is no any bank run case in
Nepal, banking industry has become the victim of liquidity crunch. The bank
rate on deposits has reached the ceiling of 12%, could have crossed that limit
also if not intervened by Nepal Rastra Bank (NRB).What are the factors behind
the debilitation of Nepalese economy?, let’s have clear look on it.
Freeze of
Government Funds
The
total allocated capital expenditure of the country is 311.95 billion out of
which capital expenditure stood at 17.66 billion, only 5.66% of the total
budget. The government exchequer holds the remaining funds, which is the only
factor that could conciliate this crunch. As a consequence, the industries and
businesses are finding it difficult to get the loan facilities and if provided
then at higher rate of interest. These days the banks crack up meager amount of
credit to those clients who have sound relationship with banks and there are
many instances where industrialists and businesses have returned without any
credit facilities. So, the government spending has a major role in maintaining
the cash cycle in the economy through the mobilization of funds in
developmental works.
Share Offerings
The
offering of share in the primary and secondary market is also responsible for
liquidity crunch. According to the data provided by Securities Board of Nepal
(SEBON) (FY 2015/16) 9 hydro power campanies,5 developmental banks, one finance
company, one insurance company and one commercial bank has gone for public
share issue, some with premium pricing. This offering of shares all holds the
cash for minimum of one and half month based on the share allotment policy of
the offering organization.
Whilst
Securities Board of Nepal has demolished a rule that the money collected in the
initial public offering (IPO) or follow-up public offering (FPO) to be
stationed at the Nepal Rastra Bank (NRB) for a certain period of time. This
decision was reversed to counter the cash shortage in the market. The
decision comes in the wake of liquidity shortage in the banking system which
has crippled the capacity of the BFIs to float loans to borrowers.
Remittance
Nepal, widely known as the country which highly
depends on remittance contributes 25% to GDP.According to the report of
Department of Foreign Employment (DoFE), the number of Nepalese leaving for
foreign employment decreased by 18.4 percent during the year 2016.The main
reason for decrease in the
outflow of migrant workers is to stay back at home to rebuild and a slowdown in
the labor-receiving countries. This has also wide impact on the economy because
the reduction in remittance inflow also contracts the source of national income
and hit the liquidity position.
