Banks start feeling liquidity pressure, lower interest rates in lending

KATHMANDU, NOV 21: 

Citizens Bank International has became the second commercial bank to lower lending rate, after Everest Bank in response to comfortable liquidity situation recently.

“Citizens Bank International has reduced 0.25 percentage points in all loan accounts due to liquidity easing,” informed the bank’s chairman Pradip Jung Pandey. The financial market that suffered through tight liquidity last fiscal year is flush with cash at present, though some bankers claim it to be a short term pheniomenon.

The tight shortage of loanable fund resulting from low deposits, the banks had shot up interest rates. In order to attract more deposits banks had jacked up deposit interest as high as 10 per cent to savings account. The higher deposit interest translated as even higher lending rates hurting the productive sector.

The banks are charging 17 plus per cent interest for loans and the private sector has been asking them to reduce it. However, as market is not struggling with low deposits, interest rates have started to go down. There is about Rs 40 billion worth of excess liquidity in the financial sector right now, according to Nepal Rastra Bank (NRB). More financial institutions in the banking sector are also expected to reduce lending rates soon.

Citizens Bank International has also increased 0.50 percentage point for all kinds of deposit accounts offered by the bank. However, easing of lending rate is also feared to lower the deposit interest rate. As the demand for deposits will go down due to excess supply the deposit rates might also be expected to go down soon. 

The higher interest rates offered by the financial institutions — especially by the new ones — were dubbed as unsustainable by many bankers for longer period.

The banks are expected to attract more borrowers by lowering the lending rates, as lowered lending rate in supposed to encourage the entrepreneurs and boost the market activities as well. Citizen Bank International has also started the service of Visa Debit Card for its customers. The card will be operable in Nepal and India, Pandey said, adding that it is bringing credit card too.

Source: THT