A banker on condition of anonymity told Republica on Friday that bankers a couple of weeks ago agreed to set the interest rates on savings between 5-7 percent in case of older banks. They have also converged to set minimum and maximum savings interest in newer banks at 6 to 8 percent respectively. [break]
“Our understanding is to execute the agreement in a gradual manner. And some banks have already taken steps to implement the decision,” the source said.
For instance, interest rates changes effected by Himalayan Bank Limited on January 15 shows that the bank will pay its clients a minimum of 5 percent annual interest return on normal savings and a maximum of 7 percent on super premium savings.
Not coincidently, the new interest rates that Prime Commercial Bank unveiled on Friday promises its clients 6 percent annual interest return on normal savings and 8 percent annual interest on corporate staff and Prime shareholders savings
“Other banks too will follow suit soon,” said the source.
Nepal Bankers´ Association (NBA) in May had also enforced a similar decision, whereby banks are still limiting interest rates on fixed deposits at 12 percent.
NBA officials like Vice President Ashok Rana deny entering into any collective agreement on savings interest rates.
However, banking sources said that an understanding was reached mainly to avoid unhealthy competition among banks to attract additional deposits. “Our experience of the last six months, when we jacked up deposit rates sharply, has proved that raising rates alone will not help us attract deposits,” said a banker.
The banker further argued that the step was necessary in order to create a fair balance in the industry while implementing the central bank´s recent directive, which has sought banks and financial institutions to limit the gap between different savings rates to 2 percent or less.
If all the banks adhered to the fresh understanding, depositors, who were already enjoying as much as 10.5 percent annual interest returns on savings, will find their interest income drop by at least 2.5 percentage points.
This will also reduce the prospect of salary account holders and other accounts holders enjoying far better returns than now. So far, the banks were providing just 2 percent annual interest returns to such accounts holders.
Some of the bankers, however, noted that the new move could be risky particularly given the latest trend of customers becoming more interest sensitive and their competitors like development banks and financial institutions offering as much as 13.5 percent interest.
The decision to cap the fixed deposit rate at 12 percent has already caused the banks lose deposits of some Rs 4 billion to the financial institutions.
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