Banks start reducing their interest rates due to fall in demand for loans

Published On: November 7, 2023 08:00 AM NPT By: Republica | @RepublicaNepal

‘Cautions should be taken amid notable surge in bad debt of banks’

KATHMANDU, Nov 7: Bankers have termed the current slowdown in the banking business as moderately risky but needed to be handled with cautions.

Speaking at a press meet organized by the Nepal Bankers’ Association on Monday, the association’s President Sunil KC said that the commercial banks have started reducing interest rates citing a fall in demand for loans. According to him, banks have been slashing their premium rate while issuing loans.

At a time when banks have been criticized for not reducing interest rates despite having excess amount in liquidity, the president of the umbrella organization, clarified on the banks’ move amid ongoing economic crisis. The ‘A’ class banks have reported a fall in their net profits by 18.60 percent in the first quarter of the current fiscal year, which is blamed for a heavy decline in demand for bank loans due to the ongoing economic recession.

According to bankers, the loan loss provision of banks has increased with a worsening situation of their bad debts. KC said the provisioning was increased to Rs 16 billion from Rs 7 billion in the review period. “Banks failed to secure more profits due to an increase in the loan loss provisions,” he said.

The quarterly reports unveiled by banks show that the average bad debt of ‘A’ class banks stood at 3.61 percent in the review period, compared to 1.66 percent a year ago. Of the 20 commercial banks operating in the country, the bad debts of six commercial banks stand at more than four percent. As a result, they earned cumulative profits of Rs 13.47 billion during mid-July and mid-October this year, compared to profits of Rs 16.55 billion in the same period last year.

KC said the situation persisting in Nepali banks is not alarming compared to the financial position of the banks in the South Asian countries. “However, we need to take cautious measures right away.”

Meanwhile, the NBA has announced to provide Rs 50 million support to the victims of the Jajarkot earthquake. The association has also expressed its commitment to help in the restructuring works in the earthquake affected areas.