Chapter 4 · Part 4 — CD Ratio, Net Liquid Assets and SLR
CD Ratio, Net Liquid Assets and SLR
One ceiling and two floors — and why a perfectly solvent bank can still fail on a Sunday morning.
Banks rarely fail because the arithmetic of their capital stopped working. They fail because on a particular morning more people wanted their money back than the bank could hand over. Solvency is a statement about the balance sheet; liquidity is a statement about the calendar.
The KFI table gives you three liquidity columns, and NRB prints the minimum for two of them directly on the sheet.
Why liquidity is a separate question from solvency
A bank's assets are long and illiquid; its liabilities are short and callable. That mismatch is not a defect — it is the business.
THE MATURITY MISMATCH — the whole banking business in one diagram
LIABILITIES ASSETS
(short, callable) (long, illiquid)
┌──────────────────┐ ┌──────────────────┐
│ Current account │ callable today │ Home loan │ 15 years
│ Savings │ callable today │ Term loan │ 5 years
│ Call deposit │ callable today │ Working capital │ 1 year
│ 1-year FD │ 1 year │ Overdraft │ rolls forever
└──────────────────┘ └──────────────────┘
▲ ▲
│ │
can leave in a day cannot be recalled in a day
The bank earns the spread for carrying this mismatch.
Liquidity regulation limits how far it may carry it.A bank can be perfectly solvent — assets genuinely worth more than liabilities — and still be unable to find cash on Sunday morning. Selling a fifteen-year mortgage book at short notice, in a market where every other bank is also selling, realises far less than its carrying value. That is how a liquidity problem becomes a solvency problem in about a week.
CD Ratio — the one everyone quotes
The footnote: "CD Ratio % = Total Credit to Total Deposit with adjustments as per NRB Directives (Should be within 90%)", marked as a monthly average.
┌───────────────────────────────────────────────────────────┐ │ │ │ Total Credit │ │ CD Ratio = ──────────────── × 100 │ │ Total Deposit │ │ │ │ ... with adjustments per the Directives, [R] │ │ and measured as a MONTHLY AVERAGE. │ │ │ │ Ceiling printed on the sheet: 90% │ │ │ └───────────────────────────────────────────────────────────┘
Read it as lending intensity. It answers: of every hundred rupees the bank has taken in as deposits, how many has it lent out?
A ceiling exists because the higher this runs, the less of the deposit base is sitting in something the bank can turn into cash quickly. At 90% only ten rupees in a hundred are uncommitted.
The word "adjustments" is doing real work and is why you cannot reproduce the printed figure by dividing the loan column by the deposit column. Try it:
NMB BANK — the naive calculation vs the printed figure Total loan Rs 261,585 m Total deposit Rs 300,468 m Naive: 261,585 ÷ 300,468 = 87.06% Sheet prints: 84.68% difference: 2.4 pp The gap is the Directives' adjustments — the treatment of particular funding sources and particular exposures — plus the fact that the printed number is a MONTHLY AVERAGE while the loan and deposit columns are period-end balances. [R]
Where the twenty banks sit:
CD RATIO — commercial banks, Chaitra end 2082 (printed ceiling 90%) NMB 84.68 ████████████████████████████████████▏ Prime Commercial 83.12 ███████████████████████████████████ Sanima 82.78 ██████████████████████████████████▊ Everest 82.61 ██████████████████████████████████▋ Citizens 82.27 ██████████████████████████████████▍ Siddhartha 78.06 ████████████████████████████████▌ Machhapuchhre 77.64 ████████████████████████████████▎ Kumari 77.17 ████████████████████████████████ Laxmi Sunrise 77.06 ████████████████████████████████ Himalayan 75.01 ███████████████████████████████▏ ─────────────────── system 72.89 ────────────────────────── Global IME 71.03 █████████████████████████████▌ Prabhu 70.61 █████████████████████████████▎ NIMB 68.51 ████████████████████████████▍ Nepal SBI 67.68 ████████████████████████████ Nepal Bank 66.76 ███████████████████████████▋ NIC Asia 66.47 ███████████████████████████▌ ADBL 64.32 ██████████████████████████▋ Nabil 79.50 █████████████████████████████████ RBB 57.71 ███████████████████████▉ Standard Chartered 53.84 ██████████████████████▎ Nobody is near the ceiling. The system runs 17 points below it.
That system-wide slack is itself the finding. It says the binding constraint on Nepali bank lending at this date was not the CD ratio — it was demand, or risk appetite, or capital. When commentary blames the CD ratio for a credit squeeze, check the column first.
Net Liquidity — the one that actually measures survival
The footnote: "Net Liquidity % = Net Liquid Assets to Total Deposits. Minimum Required 20%." This one is not a monthly average.
┌───────────────────────────────────────────────────────────┐ │ │ │ Net Liquid Assets │ │ Net Liquidity = ────────────────────── × 100 │ │ Total Deposits │ │ │ │ Minimum printed on the sheet: 20% │ │ │ └───────────────────────────────────────────────────────────┘
Net liquid assets are the things that become cash almost immediately without a material haircut — cash, balances with NRB, balances with banks, money at call, eligible government securities — net of short-term obligations. [R]
This is the number that answers can it pay tomorrow. Read directly: at 35.95% the system holds liquid assets equal to about thirty-six paisa of every rupee of deposits.
NET LIQUIDITY vs THE 20% MINIMUM — Chaitra end 2082
40% ┤ SCB 53.84
│ ██
│ RBB 47.01
│ ████ NIC Asia 43.91 Nepal Bank 41.03
│ ██████ Global IME 40.39 NIMB 40.58
35% ┼───────────── system 35.95 ───────────────────────
│ ADBL 38.29 SBI 38.75 Himalayan 34.53
│ Kumari 33.68 Machhapuchhre 32.36 Siddhartha 31.78
30% ┤ Laxmi Sunrise 30.11 Nabil 28.92
│ Citizens 28.60 Sanima 27.55 Everest 26.74
│ NMB 26.32 Prime 25.63
25% ┤
│
20% ┼════════════ MINIMUM REQUIRED 20% ════════════════
│
│ no commercial bank is below itEvery one of the twenty clears the minimum, the tightest by more than five percentage points. On this measure the commercial banking system at Chaitra end 2082 was liquid.
Notice the relationship between this column and the CD ratio: they are two views of the same decision. Prime Commercial has the second-highest CD ratio (83.12%) and the lowest net liquidity (25.63%). Standard Chartered has the lowest CD ratio (53.84%) and the highest net liquidity (53.84%). Lending more leaves less liquid.
THE TRADE-OFF, VISIBLE
high CD ratio ──────────────────────► low net liquidity
(more lent out) (less kept liquid)
Prime 83.12 / 25.63 SCB 53.84 / 53.84
NMB 84.68 / 26.32 RBB 57.71 / 47.01
▲ ▲
working the fortress, and
balance sheet earning less
for itSLR — Statutory Liquidity Ratio
The footnote: "SLR% = Statutory Liquidity Reserve and minimum requirement 12%", monthly average.
SLR is a mandatory holding of specified liquid assets — principally government securities and balances with NRB — expressed against a defined liability base. [R] It is not a measure of how liquid the bank chose to be; it is a floor the bank is required to stand on.
THREE LIQUIDITY COLUMNS, THREE DIFFERENT QUESTIONS ┌──────────────┬─────────────────────────┬──────────────────────┐ │ CD RATIO │ How much of the │ a CEILING [R] │ │ │ deposit base is lent? │ printed: 90% │ ├──────────────┼─────────────────────────┼──────────────────────┤ │ NET │ Can it meet withdrawals│ a FLOOR [R] │ │ LIQUIDITY │ immediately? │ printed: 20% │ ├──────────────┼─────────────────────────┼──────────────────────┤ │ SLR │ Is it holding the │ a FLOOR [R] │ │ │ required statutory │ printed: 12% │ │ │ assets? │ │ └──────────────┴─────────────────────────┴──────────────────────┘ One ceiling, two floors. A bank must stay UNDER the first and OVER the other two, simultaneously, on a monthly average basis.
Across the banks, SLR ranges from NMB at 20.89% to Standard Chartered at 48.48%, with the system at 32.90% — everyone comfortably above the 12% printed minimum, most of them holding two to four times it.
Why would a bank hold four times the required amount of low-yielding government paper? Three reasons: it is the collateral for interbank and NRB borrowing; it is the buffer that lets the bank survive a deposit run without fire-selling loans; and if the bank cannot find enough creditworthy borrowers, government securities are where the money goes instead. Standard Chartered's 48.48% and its 53.84% CD ratio are the same fact stated twice.
Worked example — a deposit-run stress test
Illustrative arithmetic on published figures, to show what the liquidity columns are actually for.
SCENARIO: 15% of deposits leave in one month. Apply it to two banks at opposite ends of the range. ── NMB BANK ──────────────────────────────────────────────── Deposits Rs 300,468 m Net liquidity 26.32% Net liquid assets Rs 79,083 m (300,468 × 0.2632) Outflow at 15% Rs 45,070 m Liquid assets after 79,083 − 45,070 = Rs 34,013 m Deposits after 300,468 − 45,070 = Rs 255,398 m New net liquidity 34,013 ÷ 255,398 = 13.32% Below the 20% minimum. [R] ── STANDARD CHARTERED ────────────────────────────────────── Deposits Rs 147,395 m Net liquidity 53.84% Net liquid assets Rs 79,357 m Outflow at 15% Rs 22,109 m Liquid assets after 79,357 − 22,109 = Rs 57,248 m Deposits after 147,395 − 22,109 = Rs 125,286 m New net liquidity 57,248 ÷ 125,286 = 45.69% Still more than twice the minimum.
Same shock, same percentage, entirely different outcome. And note the arithmetic detail that makes the ratio move faster than you expect: the denominator shrinks too. Deposits leaving reduces both the numerator and the denominator, but the numerator falls by the full outflow while the denominator falls by the same absolute amount from a larger base — so the ratio deteriorates non-linearly.
NMB's net liquidity as deposits leave
26.32% ┤●
│ ╲
22% ┤ ●╲
│ ╲●
20% ────────── ╲●──── minimum [R] ─────────
│ ╲●
13% ┤ ●
└──┬───┬───┬───┬───┬
0 5% 10% 15% 20% deposits withdrawn
The line steepens. Liquidity stress is not linear.This is why supervisors care about the level of the buffer and not just whether it clears the line today.
Finance companies: the same columns, a different picture
LIQUIDITY, CLASS "C" — Chaitra end 2082 company CD % NetLiq % SLR % ───────────────────────────────────────────────────────── Janaki Finance 92.26 31.17 31.56 ← CD over 90 Manjushree Finance 85.33 22.46 22.05 ICFC Finance 80.98 28.58 26.74 Reliance Finance 80.36 25.49 25.79 Samriddhi Finance 77.73 31.48 26.95 ───────────────────────────────────────────────────────── Total 74.04 35.25 32.48 ───────────────────────────────────────────────────────── Nepal Finance 60.48 58.45 50.50 Multipurpose Finance 60.30 47.33 49.03 Central Finance 55.91 51.10 46.29
Janaki Finance at 92.26% CD ratio sits above the 90% figure printed on the sheet — while also carrying negative core capital and 59.12% NPL. Three independent columns all pointing the same way is not a coincidence; it is what a failing institution looks like in this table.
And then the extreme case from Day 3, now readable:
CAPITAL MERCHANT BANKING & FINANCE — net liquidity 604.89% Liquid assets are SIX TIMES deposits. Why? Deposits Rs 27,190 thousand ← almost all have gone Loans Rs 663,530 thousand ← 100.00% non-performing The denominator has collapsed. Depositors withdrew; the loans that remain generate nothing and cannot be recalled. What is left is a shell holding some cash against a tiny residue of deposits. 604.89% is not liquidity strength. It is the arithmetic signature of an institution that has stopped operating.
Same lesson as yesterday's capital ratios, from the liquidity side: a ratio can look extraordinary because its denominator died. Always read the level of the denominator, not only the ratio.
Formulas from today
CD Ratio = Total Credit ÷ Total Deposit × 100
(with Directive adjustments; monthly average)
printed ceiling 90% [R]
Net Liquidity = Net Liquid Assets ÷ Total Deposits × 100
printed minimum 20% [R]
SLR = Statutory Liquidity Reserve, against the
defined liability base; monthly average
printed minimum 12% [R]
Stress test = (NLA − outflow) ÷ (Deposits − outflow)
both numerator and denominator moveWhat you should be able to do now
- Explain the maturity mismatch and why solvency does not imply liquidity.
- State all three liquidity formulas and which is a ceiling and which are floors.
- Explain why dividing the loan column by the deposit column does not reproduce the printed CD ratio.
- Read the CD ratio and net liquidity together as one lending decision.
- Run a deposit-outflow stress test and explain why the ratio moves non-linearly.
- Explain why a 604.89% liquidity ratio is a warning rather than a strength.
Tomorrow: asset quality — NPL, Net NPL, and the gap between them, which is the closest thing the KFI table has to a measure of honesty.
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