KATHMANDU, Oct 11: Banks are likely to raise interest rates on loans after mid-October citing the shortfall in loanable funds available with them triggered by the excessive rise in imports and slow inflow of remittance amount.
According to bankers, the country’s banking system has been facing a shortage of money supply to provide loans. “The shortage has worsened further as a number of banks have started aggressive lending at a time when the spending out of the state treasury is slow,” said Narayan Das Manandhar, chief executive officer of Prime Commercial Bank.
As of mid-September, domestic banks fixed the interest rate at an average of 4.76 percent while the interest on loans was 8.48 percent. Compared to the mid-July this year, the interest rates on deposits and loans have been up by 0.11 and 0.05 point percent, respectively.
As of last week, the records with Nepal Rastra Bank (NRB) show that the commercial banks had deposits worth Rs 424.90 billion, while they issued loans of Rs 396.10 billion. In the past few weeks, the central bank has injected over Rs 70 billion in the country’s financial market. However, it has failed to solve the existing problem of liquidity crunch.
According to bankers, the money market problem started to surface from mid-July, the commencement of the current fiscal year, mainly due to NRB imposing a rule of credit-deposit ratio of 90 percent. But the situation has worsened with soaring imports and slow remittance earnings.
The NRB records show that remittance inflows decreased 18.1 percent to Rs 75.96 billion during mid-July and mid-August this year in contrast to an increase of 23.0 percent in the same period last year. Similarly, the merchandise imports increased 75.7 percent to Rs 150.73 billion, resulting in a wide trade deficit of Rs 129.97 billion.