NBA decides not to change interest rates next month

KATHMANDU: Despite the Nepal Rastra Bank (NRB) requiring banks to review interest rates each month, banks have refused to lower their rates for the upcoming month.

A decision was made not to change the interest rates on deposits for the Nepalese month of Jestha (mid-May to mid-June) at a meeting of the Nepal Bankers’ Association (NBA) on Thursday. The bankers have decided to maintain the interest rates for the following Nepali month, according to a member of the NBA, citing a noticeable decline in the deposits collection following the reduction of the interest rates.

Banks have lowered their deposit interest rates over the past 1.5 months from over 11% annually to around 9.99 percent. In response to their failure to attract borrowers as a result of the high interest rates in place, the banks reduced their rates. According to a source, “banks have been seeing a shrink in deposits collected over the period due to the lowered interest rates.”.

The exorbitant interest rates are the primary cause of the current slowdown in economic activity, so Prime Minister Pushpa Kamal Dahal and Finance Minister Prakash Sharan Mahat have been putting pressure on the NRB to lower the banks’ interest rates. The NRB hasn’t indicated any interest in doing this, though.

Officials from the NRB claim that the central bank is unwilling to alter the policy rates because it is possible that lowered interest rates could lead to a sharp rise in imports, which would then have a negative impact on the external sector indicators, such as the balance of payments and foreign exchange reserves, once more.

The NRB recently asked the banks and financial institutions (BFIs) to fix the interest rates on their loans on a monthly basis while maintaining its firm stance. Previously, only every three months had the BFIs been permitted to review their interest rates.

According to the new rule, when determining the new interest rates, BFIs must take the average of the base rates over the previous three months into account. The bankers’ negative response, however, revealed their lack of interest in carrying out the central bank’s order.

According to the source, the NRB’s new rule is impractical because different banks have different policies regarding interest rates and premium rates in relation to credit risks.