New arrangement proposed for last creditor facilities

Inflation improved, foreign investment and foreign exchange reserves declined.



6 October, Kathmandu. Nepal Rastra Bank has prepared a draft ‘Lender of Last Lender Facility Regulation 2079’ so that Lender of Last Remedy Facility can be availed only in cases where the required liquidity is managed through interbank market, daily liquidity facility, open market transactions and permanent liquidity. cannot be done through Facility.

By tightening the Permanent Liquidity Facility (SLF) through the current monetary policy, it was arranged that only one per cent of the previous week’s total deposits of domestic currency would be available. The central bank said it would not be possible to use other means of liquidity management and would provide the last creditor facility with 2 per cent penal interest on the bank rate.

The proposed regulations stipulate that the last creditor facility will be provided by reducing the nominal value of government securities by 10 per cent, 25 per cent of the face value including investments and other securities, and at least 50 per cent of good loans. Face value. In order to get the final creditor facility, the board of directors of the bank or financial institution has to decide on the reasons for requesting the loan, the amount required and the payment plan and make an application to the National Bank.

When the bank or financial institution submits the application, it has to declare itself that it is unable to manage the required liquidity through interbank market, daily liquidity facility, open market transactions and permanent liquidity facility. For such loans, banks and financial institutions are required to have international certificates of exchange, debentures issued by the Government of Nepal, deposits with the National Bank, or gold and precious metals, to be paid within Nepal, which, under the law of the National Bank can be traded by A pledge of exchange or promissory note, guarantee of securities, good credit of the institution, various investments and other securities as deemed fit by the employee and the committee may be pledged.

Such facility will be for a maximum period of one year.

Under what circumstances is the facility of last creditor available?

If banks or financial institutions are unable to manage the required liquidity through interbank market, daily liquidity facility, open market transactions and permanent liquidity facility, they may take the lender of last resort facility. Similarly, due to the fact that he does not have marketable assets, he may have reached a state of not being able to meet his immediate obligations.

In the draft prepared by the central bank, it has been mentioned that such facility can be used if the i-bank or financial institution is not able to meet its immediate obligations when a large amount of deposit has been paid or to be paid.

It has been proposed in the draft that such a facility can be availed if a bank or financial institution fails to provide credit after giving the commitment and it has a negative impact on the economy and if there is a situation where there is a systemic risk. arises when problems or effects of one bank or financial institution cause other healthy institutions to fail, it is proposed in the draft.

This facility can also be used when the bank or financial institution is unable to pay its immediate obligations due to natural calamities or if the bank or financial institution is unable to pay its immediate obligations due to uneasy situation arising out of national and international circumstances. be unable to complete. It has been mentioned in the proposed draft that such facility can also be availed in cases where the bank financial institution is unable to meet its obligations and the institution is taken into liquidation, which creates challenges in the economy and financial system. could.

The amount owed to the bank or financial institution for last creditor convenience shall be transferred from the National Bank once or multiple times in local currency depending upon the urgent need. Providing such facilities, the Central Bank proposes that the National Bank may prescribe conditions for the collection of deposits, distribution of profits, disbursement of credit, branch establishment and other business activities of the bank financial institution.

The concerned Supervision Department of the National Bank will regularly monitor the institutions using the lending facility to see whether they have complied with the conditions. The action plan submitted by the Board of Directors of the licensed institution for revival of the bank or financial institution shall be considered eligible for the final credit facility only if the National Bank is confident that the institution can function smoothly in the long run.



Source: OnlineKhabar

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Himal Sanchar