Banks' interest income rising

DIKSHYA SINGH

KATHMANDU: The higher lending interest rate due to tight liquidity situation pushed the interest income of the commercial banks by Rs 10 billion in the last fiscal year compared to a fiscal year ago.

The total interest income of the commercial banks stood at Rs 37.8 billion by the end of fiscal year 2010-11, while the commercial banks had recorded Rs 27.8 billion a fiscal year ago, according to the unaudited financial report of fourth quarter released by the commercial banks.

In the last fiscal year (2010-11), the average net interest income of the commercial banks stood at Rs 1.21 billion while a fiscal year ago, the average net interest income of the whole banking sector was at Rs 896 million. Even discounting the four new commercial banks that were not in existence a fiscal year before, the average interest income of the old 27 commercial banks amount to Rs 1.38 billion in last fiscal year. In the preceding fiscal year these 27 banks had recorded Rs 1.03 billion as the average net interest income.

Net interest income is simply difference between revenues generated by interest-bearing assets like loans and interest-burdened liabilities like deposits. Since last few years, Nepali financial sector has been going through liquidity crunch pushing the interest rates up. The interest being value of money, the banks started to offer higher interest rate for deposits. Moreover, the emergence of new financial institutions including commercial banks, development banks and finance companies, the interest rate were pushed higher up to attract more deposits. Rising deposit interest rate also led to surge in lending interest rate hurting the industries that have been bearing the burnt of the prolonged hours of power cuts and labour disputes.

The old commercial banks’ interest income — that is income from interest on lending — rose to Rs 42 billion which was almost half at Rs 27 billion a fiscal year ago. The interest expense — that is interest paid for the depositors — also surged from Rs 57.5 billion to Rs 80.5 billion in fiscal year 2010-11.

The interest rate offered by the banks for deposit ranges from mere two per cent to 12 per cent, according to Nepal Rastra Bank (NRB) data. Some of the older and established commercial banks that have created goodwill among the depositors offer pittance for deposits while they charge prevailing interest rate for loans. The huge spread rate — difference between lending and deposit interest rate — contributed in higher interest income of many banks.