Commercial banks of Nepal are likely to reduce the existing interest rates on deposits from Sunday, the beginning of the new Nepali month, after the banks were replenished with surplus liquidity.
A meeting of the Nepal Bankers’ Association (NBA) held on Wednesday, decided to reduce the interest rate as per the guidance of Nepal Rastra Bank. NBA’s President Sunil KC said the banks will be revising the interest rates up to 10 percent as allowed by the central bank.
KC said the base rate will also be revised with the change in rate of deposits. As the interest rates on deposit and lending are correlated, it will certainly affect the interest rates on loans.
The NRB records show that the banks and financial institutions (BFIs) as of Monday collected deposits worth Rs 5.311 trillion, an addition of Rs 16 billion in the past five days. Similarly, the loan amount stood at Rs 4.778 trillion.
With the ease in liquidity position, the credit to deposit (CD) ratio of the BFIs has come down to an average of 86.65 percent, against the NRB’s defined mandatory threshold of 90 percent. The interbank rate has also fallen to 6.14 percent from around 8 percent.
Recently, the private sector is exerting pressure on the NRB to revise the banks’ interest rates. The central bank itself has also started discussion on the possibility of lowering the interest rates.
The private sector has been blaming NRB for its contractionary monetary policy for the ongoing economic problems. The regulator of the money market had tightened the money supply citing that excessive loans were used to import goods, taking the country to a deepening trade deficit. As a result, the base interest rate increased from around seven percent to up to 11 percent in the past one year.
Since mid-September, banks have increased their interest rates on fixed deposits by 10 percent to 12.13 percent, while the interest rate on savings accounts is 7.13 percent per annum on an average. It has triggered the lending rate to up to 18 percent a year.
