KATHMANDU, Dec 2: Banks are contemplating to lower the interest rates on loans further as the sector has a surplus amount of loanable funds with them.
Speaking at a program on Friday, Sunil KC, president of the Nepal Bankers’ Association (NBA), said banks reduced lending rates by more than one percentage point in the past one year.
“While the base rate of most of the banks have come down to a single digit, it is likely to go down further in the upcoming days,” KC said.
Revised interest rate corridor system introduced
In November last year, creditors were compelled to pay an interest rate as high as 18 percent for the money they borrowed after banks faced an acute shortfall of liquidity. It was only in the past few months that the banks have started reducing their interest rates after the liquidity situation eased.
After banks were stocked with excess liquidity due to a heavy fall in demand for loans, the interbank interest rate has come down to as low as 1.89 percent from more than eight percent in the past year. As of last week, banks lent a total of Rs 4.979 trillion while they collected deposits of Rs 5.940 trillion. The credit-deposit ratio has also gone down sharply to 81.02 percent, according to the records with Nepal Rastra Bank.
KC said banks have invested more than Rs 1.7 trillion in Nepal’s private sector. Most of the amount is injected in productive sectors including energy, agriculture and small enterprises. According to him, over Rs 300 billion has been invested in the country’s hydropower sector.
KC sought the need for simplifying hedging procedures in order to attract more foreign direct investment in the country. “Credit rating of the country is another aspect to ensure more capital from foreign investors,” he said.
Of late, banks have been facing more challenges to recover increasing bad debts. Due to this reason, banks’ profit has declined by an average of 28 percent while the return on equity has also gone down to 8 percent from more than 20 percent a decade ago.
