Kathmandu, April 5

Commercial banks have hailed the central bank's initiative to allow them to borrow from foreign banks and financial institutions citing that it will not only address the current challenge of credit crunch but also help stabilise the interest rate in the domestic market.

Banks have started approaching multilateral financial institutions and also the export-import (ExIm) banks of various countries to avail the loan in convertible foreign currency.

“We will be able to avail foreign loans at an interest rate that is cheaper than what we are paying to collect deposits in the local market,” said Gyanendra Prasad Dhungana, president of Nepal Bankers' Association and CEO of NB Bank.

Deposit and lending rates have skyrocketed in recent years as deposit mobilisation has been much slower than loan demand. Slow remittance growth, sluggish exports and slow pace in development works that inject capital in the economy have made it difficult for banks to mobilise deposits.

Against this backdrop, the central bank has allowed banks to avail foreign loans in convertible foreign currency and the impact of the central bank's policy was reflected in the stock market as the benchmark index increased by 23.94 points or 1.95 per cent today.

Dhungana of NBA said that banks will be able to avail loans at around six to seven per cent interest with hedging facility, which covers the exchange risks in future.

Currently, banks are collecting deposits at 10 per cent on general savings and 12 per cent on fixed category of deposits. Lending rate has also surged higher than the desired level as the rate of deposit collection is high, according to bankers.