“It is true that lending rates have gone up, but closer look of the interest rates movement shows banks have more than doubled their deposits rates, whereas lending rates have jumped by around 3.5 percent only over the last two years,” said NBA President Sashin Joshi.[break]
According to the association, the industry average of corporate lending rate presently stands in therange of 10.5 to 13.5 percent, while personal lending rates stand in the range of 12.5 percent to 15.5 percent.
“Rates of some of the banks might be slightly higher, but that is the industry average,” Joshi said.
Given the situation, Joshi stressed that the average spread rate (gap between deposits and lending rates) in the industry has shrunk to less than 3 percent over the past few months.
“The liquidity crunch and other factors have forced banks to jack up deposit rates so dramatically that we are finding it tough to transfer the cost to the clients,” he stated.
His statement, however, contradicts with the central bank´s announcement. According to Governor of Nepal Rastra Bank (NRB) Dr Yuba Raj Khatiwada, banks are still operating with spread rate of well over 5 percent.
As for the cases of banks like Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL) that are still providing savings interest of around 3 percent but have jacked up the lending rates in line with the market trend, Joshi tagged them as cases of ´exception´.
“At surface, this might appear unfair. But if their clients are too loyal, what can others do? Otherwise, banks in general are finding it tough to retain their clients even with much higher interest rates than that,” Joshi added.
Joshi expressed concerns over the banks´ failure in lure enough deposits from the market despite jacking up the interest rates.
NRB data also shows that banks´ deposit, which stood at around Rs 620 billion in mid-July 2010, currently stands at about Rs 623 billion.
He attributed the situation to long-running political instability and new policy announcements, which have driven money away to informal system, creating liquidity crisis in the banks.
“Mainly provisions like income disclosure on large realty transactions and treatment of tax evasion as a money laundering case have impacted the market negatively,” Joshi said, adding that lack of political instability has not helped them as well in managing liquidity problem.
Joshi even viewed that mere rise in interest rate was not helping them mobilize deposits or address liquidity crunch. “The problem has roots in lack of confidence in the system and hence, should be addressed at the political level,” he said.
He also asked the government to take concrete steps to monitor and supervise the operations of co-operatives.
Bankers have been saying that high deposit rates offered by the savings and credit co-operatives are distorting the market. Currently, such co-operatives are mobilizing deposits offering interest return of as high as 18 percent.
“That has forced the finance companies and development banks working at local level to announce equally competitive rate. This trend must be checked. Otherwise, it will drive the financial system to serious problems,” Joshi said.
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