Investment is deploying saving in the growth of a economy. Everest Bank is established to earn profit and is earned in order to meet its requirement. To earn profit, bank should make investment keeping primary and secondary reserves to meet its liquidity requirements. Reserves are essential to satisfy the credit needs of the society by granting short terms loans to its customers.
Whatever is left with the bank after making advances is invested for the long period to improve its earning capacity.
Basically, there are two types of funds for investment, “Capital and Deposit”. Deposit constitutes the major portion of the investment policy of bank and the investment policy is highly influenced by the nature of funds available for its investment.
If the funds are of permanent nature, the chances of requiring profitable assets are high; on the contrary if the funds are short term nature, the bank must give attention for its liquidity position than its investment. As a result a chance of earning the profit is always at risk.
The investment policy of the bank consists of earning high returns on its unloaded resources. But it has to keep the view of safety and liquidity of its resources so as to meet the potential demand of its customers as and when needed.
Since the objective of profitability conflicts with those of safety and liquidity, the wise investment policy is to strike a judicious balance between them. Sometimes a bank get into serious financial problems arise from not collectable loans due to mismanagement, illegal manipulated loans, misguided lending policies or unexpected economic downtown.
Therefore a bank should lay down its investment policy in such a manner that it can be source and prudent, ensure safety and liquidity of public funds and at the same time maximize its profit.
The environment in which the bank operates influenced by its investment policy, the nature and availability of funds and also the assets differ widely from the country to country, also from one region to another within the same nation too.
For example – scope of a bank operating Jumla differs a lot from the scope of the bank operating in Biratnagar.
The investment policy applied in the Kathmandu Valley might not be applicable to the customers of Khotang because the demands for the loans are less in the rural areas while it is higher in the urban areas.
