Increased liquidity with banks, reduction in interest rates on deposit, declined CD ratio, fallen interbank interest rates and reduced discount rates of NRB’s treasury bills put downward pressure on lending rates.

KATHMANDU, June 14: Banks and financial institutions (BFIs) are likely to reduce the interest rates on loans from Friday, the beginning of the Nepali month of Asadh, with the increase in loanable funds with them.

Since mid-April, the banks have lowered the interest rates on personal fixed deposits to 9.99 percent per annum, while those on savings accounts have been maintained between 5.4 percent and 7.4 percent per annum. Likewise, the interest rates on loans also declined successively from 12.84 percent to 12.6 percent per annum.

“Keeping in view the decline in the interest rates on deposits and changes in the bank rate by Nepal Rastra Bank (NRB), banks are considering reducing interest rates on loans soon,” said a banker.  “Furthermore, the base interest rate is also expected to fall below 10 percent, which was around 10.48 percent in the past few months.”

Last month, through the third quarter review of the monetary policy 2022/23, Nepal Rastra Bank (NRB) took a soft policy to reduce the market interest rates and to increase money supply. In this regard, the central bank has lowered the bank rate to 7.5 percent from 8.5 percent.

The NRB records show the BFIs collected deposits of Rs 5.537 trillion as of Monday,  while their total lending amounted to Rs 4.853 trillion. Commercial banks alone have collected Rs 4.885 trillion in deposits and issued loans of Rs 4.298 trillion.

With the increase in deposits in the banking system, the credit to deposit ratio (CD ratio) has also come down to 84.40 percent, compared to the threshold of 90 percent fixed by NRB. Similarly, the weighted average of interbank interest rates has also fallen to 6.18 percent. 

Meanwhile, the interest rates on treasury bills, a short-term lending instrument, has also started to decline with an increasing liquidity in the banking system. The central bank has fixed the discount rate of 6.6837 percent on the 28-day treasury bills issued on Monday.

Likewise, the discount rates on 91-day treasury bills have come down to 8.1370 percent, on 182-day treasury bills to 8.0445 percent and on 364-day treasury bills to 8.1478 percent. Earlier in the current fiscal year, the discount rate of the short-term credit instruments stood at an average 12 percent.

Bankers decide not to alter interest rates on their deposit collection for the next month

Nepal Bankers’ Association (NBA) has decided not to reduce the interest rates on deposits for the next month (between mid-June and mid-July).

According to the bankers, the umbrella organization through its meeting on Tuesday,  has considered to stay in a wait and watch mood for the NRB to implement the monetary policy for the fiscal year 2023/24. The central bank is likely to endorse the policy within the next two weeks.   

 
• Banks_and_financial_institutions
 
• loanable_funds
 
• interest_rates