Liquidity surplus is short term phenomenon

KATHMANDU, FEB 29, 2012

The current liquidity surplus is a short term phenomenon, according to central bank governor Dr Yubaraj Khatiwada.

“The current liquidity scenario is a short term phenomenon, whereas there is a long term credit demand,” he said, addressing the official inauguration of the youngest commercial bank, Sanima Bank, here in the valley today.

Currently, banks and financial institutions have added around Rs 85 billion deposits, and are in a comfortable position as against last year’s tight liquidity situation, though the amount available for loans is very limited.

The financial sector should move ahead with other sectors, he said, adding that it alone cannot sustain the economy in absence of other sectors that are at present performing poorly. “It’s time that banks and financial institutions think of long-term investments instead of short-term investments and profit maximisation. Financial institutions should increase their capital base to invest in the long term.”

Suggesting the banks and financial institutions to invest in productive sectors like agriculture, Khatiwada said that they are competing for profit maximisation in the short term, which will not support economic growth.

“Development of the real sector is key for the overall economic development that will ultimately benefit the financial sector. There may be less profits but small farmers are also bankable and banks should look to the villages where there is immense opportunity.”

Long-term investment in the productive sector, despite low benefits, is sustainable, he suggested.

Sanima Bank — the 32nd commercial bank — will also help mobilise domestic and

foreign investment in the productive sectors, he said, hoping that Nepal Investment Year 2012-13 will benefit from the bank that is promoted by the Non-Resident Nepalis Association (NRNA) that could help invite foreign investment in the country. “The bank could help make Nepal Investment Year successful.”

Indicating that Sanima Bank will be the last commercial bank for the time being, the central bank governor also said that the paid up capital of a commercial bank is not the only measuring rod. “There are other indicators like good corporate governance.”

The bank’s chairman and president of NRNA Jeeba Lamichhane promised to maintain good corporate governance in the institution. “We have till date maintained good corporate governance and will continue to do so,” he said, adding that the bank is providing scholarships to some 16 students of 10+2 level apart from providing training to 40 youth in rural areas where its eight branches are located. “The bank has allocated Rs 5.3 million for such programmes,” he added.

Do not expect dividends soon

Central bank governor Dr Yubaraj Khatiwada requested investors not to expect dividends immediately. “Banks and financial institutions should be patient and increase their capital base instead of looking for immediate profits and dividends,” he said, suggesting them to maintain a capital adequacy which should be more than what the central bank has prescribed to cushion future risks. “The country is passing through a transition and banks and financial institutions, and investors should change their tendency of immediate dividends and rather think of a long-term strong capital base,” he warned.