What it is
This is the bank's ready money. It includes notes and coins in branches and ATMs, and balances the bank keeps with other banks that it can take out at any time.
'Cash equivalents' are short-term, very safe placements that turn into cash within about three months with no real risk of losing value.
A bank needs enough of this to pay customers who withdraw, but not too much, because idle cash earns nothing.
How it is calculated
Cash in hand + balances with other banks and financial institutions + short-term placements that mature within about three months. Reported as a single line.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL reported cash and cash equivalents of Rs 708.13 crore at the end of FY 2082/83 Q4, which is 0.96% of its total assets of Rs 73,473.16 crore.
What good looks like
There is no single right level. A rising share of cash can mean the bank is cautious or cannot find borrowers. A very low share can mean it is stretched. Look at it together with the credit-to-deposit ratio.
Watch out
- This line does not include the balance kept at Nepal Rastra Bank; that is a separate line.
- Cash earns almost nothing, so a high cash pile is not a sign of profit.
- Quarter-end balances can be dressed up; the yearly trend is more honest.
In Nepal
NRB's quarterly template lists this as the first asset line, separate from 'Due from Nepal Rastra Bank'. The compulsory reserve a bank must hold at NRB (the CRR) sits in the next line, not here.
Questions
Safer for paying depositors, yes. But cash earns little, so too much of it lowers profit. It is a balance.
No. Balances with Nepal Rastra Bank are shown on their own line.