Himalayan News Service

Kathmandu, March 28:

With a low risk factor, private commercial banks as well as state-owned banks are jumping on the consumer financing bandwagon and tying to outdo each other with competitive interests rates. Almost all the leading banks, including the Nepal Bank Ltd (NBL) and Rastriya Banijya Bank (RBB) have joined the race by drastically reducing interest rates. While NBL and RBB offers housing loans at 7.5 per cent interest rate, some private commercial banks still charge 8.5 per cent to over 10 per cent interest rates on consumer loans. Currently, the size of the consumer lending market is estimated at Rs 10 billion, banking officials estimate. However, the market has not been fully exploited. Parshuram Chhetri, chief lending officer at NBL, commented that big investors are losing interests on loans. However, demand for small loans has gone up which is also less risky compared to huge loans. Chhetri said that business confidence among big clients has been low.

“The bank’s high liquidity and low interest rates in treasury bills issued by Nepal Rastra Bank (NRB) has also compelled the bank to go for consumer financing at low interests,” opined Chhetri. There is a high risk in corporate loans, he said. In consumer loan market, 60 to 64 per cent is occupied by auto, 35 per cent by housing and less than five per cent by the educational sector, said Chhetri. Effective ‘reform’ in RBB helped the bank to move into

‘consumer lending’ and compete with private banks, said Bruce Henderson, CEO of RBB. “The bank has reformed areas like lending and recovery, rightsizing staff, quality manpower, reducing non-performing assets (NPA) and computerisation,” Henderson said. “Consumers get attracted towards small loans for housing, automobiles and education, thanks to low interest rates,” said Henderson. “A recent example is that over 750 people have already registered their names for housing, automobiles and educational loans at the exhibition recently held at Birendra International Convention Centre (BICC) at the RBB stall.”The bank is giving housing loans at the rate of 7.5 per cent interest rate and auto loans at seven per cent interest rates.

Keshav Poudel, manager corporate credit of Everest Bank Ltd opined that consumer financing constitute 20 per cent of total loans. “EBL is the first bank to introduce consumer loans in 2001,” claimed Poudel. Viability for investing in big projects seems dim. But small loans like housing and auto are getting safe and popular, said Poudel. Henderson of RBB said that the bank is opening the window of opportunities for many consumers. It encourages individuals to do business and other purposes and give loans promptly, he said. Chetan Thapa, relationship manager of Bank of Kathmandu (BoK) commented that the growth rate in consumer loans is going up. He said that there is a high risk in industrial loans and other big loans but it is safer in the consumer loans sector, coupled with better returns. Thapa said the growth rate in home loans has been 210 per cent, while the growth rate in education loans has been 150 per cent for his bank. BoK started consumer financing about four years ago, Thapa said.