Nepal | November 19, 2019

Bankers urge NRB to review new spread rate calculation decision

Himalayan News Service

Kathmandu, August 7

Nepal Bankers’ Association (NBA) — the umbrella organisation representing 28 commercial banks of the country — has officially expressed its objection over the central bank’s recent decision to revise the formula to calculate the spread rate that banks are required to maintain.

Issuing a press statement today, NBA has urged the central bank to revisit its decision regarding the spread rate citing that implementation of the new spread calculation method will directly squeeze the banks’ profits by almost Rs 30 billion, or 25 per cent of the total profits in the banking sector.

“Along with this, the changes in the calculation of spread rate, which is the rate that banks must maintain between their deposit and lending rates, will directly affect the income tax being paid by the banking sector and also hit the lending capacity of banks,” reads the NBA press statement.

As per the new rule introduced by NRB on spread calculation, banks cannot include their interest-earning from investments in government securities while calculating the spread rate as allowed earlier. Issuing a circular on Monday, the central bank barred banks from incorporating the earnings from investment in the spread rate calculation.

Implementation of this provision while determining the spread rate will also bring down the share value of commercial banks that has 75 per cent stake in Nepal’s share market, NBA claims.

As the NBA’s new direction would put a dent on banks’ profits, NBA had called a meeting of CEOs of 28 commercial banks today morning to discuss on the new central bank rule and develop a common agenda.

NBA has also requested NBA to review its decision to raise countercyclical buffer, a macro-prudential instrument used to counter possible cyclical systemic risks among banks, by two per cent.

As per NBA, rise in countercyclical buffer will raise the cash reserve ratio (CRR) among banks to 13 per cent, though they are obliged to maintain the CRR at 11 per cent.

“Ultimately, this will squeeze the lending capacity of banks by Rs 150 billion,” as per NBA.

Moreover, aforementioned policies adopted by the central bank will also directly affect the government’s economic growth target of 8.5 per cent in the ongoing fiscal year and the credit growth target of 21 per cent, say bankers.

“As these provisions are against the growth of the banking sect or and the entire economy, NRB should revisit them without delay,” NBA says.

A version of this article appears in print on August 08, 2019 of The Himalayan Times.

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