Lending rates unlikely to come down any time soon

Kathmandu, June 13

Bucking the trend of previous fiscal years, deposit and credit rates have continued to surge even towards the end of this financial year, as banks are competing to attract deposit to meet growing credit demand.

After Nepal Bankers' Association (NBA)'s decision on Monday to remove the 11 per cent ceiling on fixed deposit rate and eight per cent on savings deposit, some of the banks have started raising the deposit rates.

Century Commercial Bank, Civil Bank and Sanima Bank are now offering interest of 12.5 per cent, 12.22 per cent and 12 per cent, respectively in fixed deposit schemes. This indicates that lending rates will also remain high in the near future.

Around this time in the previous fiscal years, deposit rates used to take a dip due to higher public spending, especially capital spending. Public spending has lately started gathering pace as in the previous years. But credit demand is still high this year, whereas sources for deposit collection are limited, according to bankers.

Gyanendra Prasad Dhungana, president of NBA, said that underutilisation of capital budget, weak remittance growth and sluggish exports are preventing deposit growth, while the demand for loan has remained high.

One of the reasons for high credit demand is soaring imports, which stood at Rs 985.83 billion in the first 10 months of the current fiscal year, up 21.9 per cent than in the same period a year ago.

Sanjib Subba, CEO of National Banking Training Institute (NBTI), said that the interest rate in deposits that had remained more or less stable in the second and third quarters has suddenly started going up and the unhealthy competition among banks could adversely affect the interest rate stability.

According to NBA, till the 11th month of this fiscal, the total deposits accumulated by the banks stood at Rs 256 billion, whereas banks have floated loan worth Rs 342 billion.

Banks can issue loan up to 80 per cent of sum of deposit and core capital. Local currency deposit of the banks stood at Rs 2,256 billion, while total loan portfolio of the banks stood at Rs 2,063 billion.

In the review period, growth of deposits stood at 11.3 per cent whereas the growth of loans was seen at 16.5 per cent..

Total core capital of the class ‘A' banks was around Rs 320 billion. In this respect, the average CCD level of the commercial banks has overshot the permissible CCD level of 80 per cent.

In the last month (May 11 to June 11), deposit growth improved by Rs 42 billion, but the banks also floated loan amounting to Rs 40 billion in the same period.

“In the previous quarters, Banks used to disburse the already committed loans in small instalments along with improvement in deposits,” a prominent banker told The Himalayan Times. “But the government's capital expenses in the last month may not be able to cater to the demand for loans that were already committed by the banks for the coming month.”

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