What it is
A bank cannot lend out every rupee. Some goes into investments, mostly Nepal government bonds and treasury bills, which pay interest and are easy to sell.
Banks also hold some shares in other companies, and units of mutual funds.
Government securities also help the bank meet NRB's Statutory Liquidity Ratio (SLR), a rule that part of deposits must sit in liquid assets.
How it is calculated
Sum of investment securities held: government bonds and bills, corporate bonds, shares and fund units, at the value NFRS requires (cost or fair value depending on the type).
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's investments were Rs 12,753.53 crore at the end of FY 2082/83 Q4, compared with Rs 46,031.78 crore in customer loans.
What good looks like
Investments usually earn less than loans but are safer. A rising share can mean the bank cannot find enough good borrowers. Interest from investments appears inside interest income.
Watch out
- Share investments can swing in value with NEPSE; gains or losses may land in reserves rather than profit.
- Not all investments are liquid; a stake in a subsidiary is not easy to sell.
- Government bond prices fall when interest rates rise.
In Nepal
NRB requires banks to hold a Statutory Liquidity Ratio in approved liquid assets, mainly government securities; the rate is set in monetary policy and changes, so no number is quoted here. The cost of holding SLR assets is one component of a bank's base rate.
Questions
They are safe, they pay interest, they can be sold quickly, and NRB requires a minimum amount in liquid assets.
Sometimes. Under NFRS, some changes go to profit and others go straight to a reserve. The notes say which.