Banks interest spread down
KATHMANDU, NOV 27:
The commercial bank’s interest spread rate has abated in the recent quarter due to growing deposits and shrinking lending.
The commercial bank’s average net interest spread has come down to 3.2 per cent in the first quarter of current fiscal year, according to the recently published unaudited financial reports of the commercial banks. In the previous quarter, that is, fourth quarter of the last fiscal year, the commercial banks’ net interest spread stood at 3.5 per cent on average. Likewise, in the corresponding quarter of the previous fiscal year the average spread rate enjoyed by the banks stood at 3.4 per cent.
“At present, the banks have excess liquidity that means the total interest amount to be paid is growing in comparison to the total interest amount they are getting paid leading to contraction of spread rate,” pointed out Bhaskar Mani Gyanwali, spokesperson for the central bank.
The net interest spread is a profit margin for the banks. The difference between the income received from its lending activities and expenses made to pay for borrowing is the spread for the banks. Basically, higher the spread higher is the profit for the banks as the net interest is the determining factor for the financial institutions’ income.
Since the beginning of the current fiscal year, deposits with the commercial banks have started to grow more than the amount of lending made by banks leading to comfortable liquidity situation among the financial institutions. Despite sufficient deposits banks are apprehensive to lend aggressively. The banks cite the absence of viable projects as the reason behind the down turn of lending. Likewise, the major borrower from financial institutions –realty sector has also cooled down leading to contraction in interest income of the banks. Among the 27 of the 31 commercial banks that have published net spread rate on their financial reports, Nepal Bangladesh Bank has the lowest spread of 1.79 per cent while Sunrise Bank has highest spread of 4.44 per cent. The banks have been paying higher interest for deposits in order to attract more deposits during the liquidity crunch period leading to further rise in the lending rate. “Though the banks have started to lower their lending rate lowering of deposit rate is yet to be started,” pointed out Gyanwali. Everest Bank and Citizens Bank International have already lowered the lending rate by 0.25 percentage in all the loan accounts. Others banks are also expected to lowers their rates soon.
NRB absorbs Rs 5.44bn
In order to absorb the excess liquidity in the financial system, Nepal Rastra Bank (NRB) has auctioned the government securities worth Rs 5.44 billion to the financial institutions. “The government securities were auctioned off at weighted average interest rate of 3.58 per cent to commercial banks and development banks,” informed spokesperson for NRB Bhaskar Mani Gyanwali.
Source: THT
