NBA decides not to alter interest rates next month

Published On: May 12, 2023 09:30 AM NPT By: Republica | @RepublicaNepal

KATHMANDU, May 12: Bankers have declined to reduce their interest rates for the next month despite Nepal Rastra Bank (NRB) making it mandatory for them to review the interest rates every month.

A meeting of Nepal Bankers’ Association (NBA) held on Thursday decided not to revise the interest rates on deposits for the Nepali month of Jestha (mid-May to mid-June). Citing a notable decline in the deposits collection after the reduction of the interest rates, the bankers have decided to leave the interest rates unchanged for the next Nepali month, according to a member of the NBA.

For the last one and a half months, banks have reduced the interest rate on deposits to around 9.99 percent from above 11 percent per annum. The banks lowered the interest rates after they were unable to attract borrowers due to the prevailing high interest rates. “Over the period, banks have been witnessing a shrink in the deposits collection due to the lowered interest rates,” a source said.

Prime Minister Pushpa Kamal Dahal and Finance Minister Prakash Sharan Mahat have been pressurizing the NRB to reduce the banks’ interest rates, highlighting that the exorbitant interest rates are the main reason behind the current slowdown in economic activities. However, the NRB has not shown any interest in doing so.

According to NRB officials, the central bank is not willing to change the policy rates citing the possibility that lowered interest rates could massively increase imports, which could adversely affect the external sector indicators including the balance of payments and foreign currency reserves again.

Despite remaining firm on its stance, the NRB a few days ago asked the banks and financial institutions (BFIs) to fix the interest rates on their loans on a monthly basis. Before this, the BFIs had been allowed to review their interest rates only on a quarterly basis.

Under the new provision, the BFIs need to consider the average of the base rates of the previous three months while fixing the new interest rates. However, the bankers responded negatively, showing their apathy towards implementing the directive enforced by the central bank.

The source said the NRB’s new rule is not practicable as all the banks do not have the same policy on interest rates and premium rates in relation to the credit risks.