BFIs to lowering loan interest rates from next month

Credit crunch looms as commercial banks grapple with liquidity mismatch

KATHMANDU: Due to an increase in their loanable funds, banks and other financial institutions (BFIs) are likely to lower their interest rates starting on Friday, the first day of the Nepalese month of Asadh.

Interest rates on personal fixed deposits have been reduced by the banks to 9 point 99 percent per year since mid-April, while those on savings accounts have been held steady at 5 point 4 percent to 7 point 4 percent per year.

The annual percentage rate of interest on loans also decreased, going from 12 point 84 to 12 point 6 percent.

A banker stated, “Banks are considering lowering interest rates on loans soon, keeping in view the decline in the interest rates on deposits and changes in the bank rate by Nepal Rastra Bank (NRB).”.

“In addition, the base interest rate—which was recently around 10 point 48 percent—is anticipated to decrease below 10 percent as well. ”.

The Nepal Rastra Bank (NRB) adopted a dovish policy to lower market interest rates and expand the money supply last month through the third quarter review of the monetary policy 2022/23. With respect to this, the central bank reduced the bank rate from 8% to 7%.

According to NRB records, as of Monday, BFIs had received deposits totaling Rs. 5.537 trillion, while they had made a total of Rs. 4.853 trillion in loans. Commercial banks alone have taken in 4.885 trillion rupees in deposits and issued 4.298 trillion rupees in loans.

The credit to deposit ratio (CD ratio), which was previously set at 90% by the NRB, has decreased to 84.4% as a result of the rise in deposits in the banking system. The weighted average of interbank interest rates has also decreased, to 6 point 18 percent.

In the meantime, as the amount of liquidity in the banking system has increased, the interest rates on treasury bills, a short-term lending instrument, have also begun to decline. For the 28-day treasury bills issued on Monday, the central bank set the discount rate at 6.6837 percent.

The discount rates for 91-day Treasury Bills have decreased to 8.1370%, 182-day Treasury Bills to 8.0445%, and 364-day Treasury Bills to 8.1478%. The discount rate of the short-term credit instruments earlier in the current fiscal year was 12 percent on average.

As of mid-June through mid-July, the Nepal Bankers’ Association (NBA) has decided not to lower the interest rates on deposits.

The umbrella organization reportedly decided during its meeting on Tuesday to maintain a wait-and-see attitude until the NRB implemented its monetary policy for the fiscal year 2023–2024. Within the next two weeks, it’s likely that the central bank will approve the policy.

Fiscal Nepal |
Wednesday June 14, 2023, 10:23:55 AM |

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