Statistics compiled by Republica shows 32 commercial banks have slashed rates on one-year fixed deposit by up to 2.5 percentage points, whereas interest on home and term loans have dropped by only up to two percentage points.[break]
Standard Chartered Bank Nepal tops the list in terms of slashing the one-year fixed deposit rate, cutting down the interest on much-sought-after deposit product by 2.5 percentage points between January 20 and May 1. With the downward revision, StanChart´s one-year fixed deposit now fetches an interest of 3.5 percent - the lowest among the country´s commercial banks.
In contrast, the lender has reduced interest on auto and home loans by a nominal 0.9 percentage point each, bringing them to a range of 12-14.5 percent. It has, however, not made any changes to rates on term loan - a product used by SMEs to start up businesses - which continue to range between 12 and 13 percent.
This tendency of cutting down borrowing rates by a huge margin while letting credit rates hover at almost the same level as before has been shown by almost all other banks. For instance, banks like Global, Grand, NCC and Prime have brought down fixed deposit rates by 2 percentage points each and have also reduced savings deposit rates by up to 1.5 percentage points. But among them, only Global Bank has brought down interest on home and auto loans by 1.5 percentage points. Prime bank has brought down term loan rate by as much as two percentage points in an isolated case.
PK Mohapatra, CEO of Everest Bank, calls this situation the result of shortage of “lendable avenues”. “If there were areas where banks could funnel money without fear of losing them, they probably would have engaged in a race to cut down rates to boost lending,” said Mohapatra, whose bank recently reduced one-year fixed deposit rate by two percentage points, while bringing down home loan by 0.75 percentage point.
“In absence of this environment, many just prefer to sit on top of cash,” he told Republica, indicating general borrowers will continue to suffer unless economic activities pick up and unless there is clarity in the business sector.
Mohapatra´s statement and the manner in which banks are charting their course are palpable signs that lending rates will not come down anytime soon, while depositors will have to bear the brunt of low interest.
Currently, the average interest on one-year deposit has tumbled to an average of 8.1 percent from 12 percent around two years ago. Considering inflation of 7.5 percent, it can be said that depositors are gaining almost nothing by parking their money in banks, while those planning to borrow money still have to pay a hefty sum.
Interest Rate Facts:
One-year fixed deposit
Highest - Commerz & Trust - 10.5-11%
Savings Deposit
Highest - Century Bank - 9-10%
Home Loan
Lowest - NIC Bank - 9.99%
Auto Loan
Lowest - Nepal Bank, StanChart - 12%
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