KATHMANDU, April 13: After immense pressure and facing a slowdown in their businesses, Nepali commercial banks have finally shown some indication of reducing the interest rates on loans.

On Wednesday, the Nepal Bankers’ Association (NBA), the umbrella organization of commercial banks, decided to reduce the interest rates on bank deposits to below 10 percent to be effective from Friday, the Nepali New Year. NBA Vice-president Santosh Koirala said the NBA has decided to lower the interest rates on deposits for now.

The interest rate on individual fixed deposits has been fixed at 9.99 per cent whereas, for institutions, it is 7.99 per cent. Likewise, the interest rates for saving accounts will be 5.4 per cent at a minimum and 7.4 per cent at a maximum.

The bankers’ decision came the next day after the Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari said that the banks were free to fix their interest rates based on the market situation.

Koirala, however, said the decision was made in response to demands from various stakeholders. With this decision, the interest rates on loans are expected to follow suit. “However, the banks’ customers might have to wait for three more months to realize a reduction in the interest rates on loans.”

Although both the private sector and the government have been exerting pressure on banks to take down their interest rates for a long time, banks have been dilly-dallying to do so. Now, banks have been ready to make a move only after facing a heavy fall in demand for loans due to high interest rates despite having excessive liquidity with them. 

The NRB records show that the banks and financial institutions (BFIs) have collected deposits of Rs 5.440 trillion, while their lending stood at Rs 4.827 trillion as of Wednesday. In the past nine months since the commencement of the current fiscal year, the BFIs collected additional deposits of over Rs 270 billion whereas they provided loans of Rs 108 billion. This provides the BFIs with a cushion of spare liquidity amount of more than Rs 163 billion.

Currently, the credit-deposit ratio of the BFIs is 85.45 percent against the threshold of 90 percent fixed by the central bank. According to the bankers, the remaining margin and excess deposit collections have enabled the BFIs to lend more than Rs 200 billion. 

The banks are reported to have made the move citing the possible rise in their bad debts at the existing exorbitant interest rates. The interest rates on loans have to be dropped as the central bank has made it mandatory for banks to maintain the maximum spread of four percent, said bankers.

 
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