Commercial Banks spread rate hits 7.01pc

KATHMANDU, JUN 17 -

Commercial banks ’ spread rate has reached 7.01 percent.

Average interest rate on deposits was 5.36 percent as of mid-May, while that on lending was 12.37 percent, according to the Nepal Rastra Bank (NRB). The spread rate in mid-April was 7 percent.

Spread rate is the difference between the interest rates on deposit and credit. “The spread rate at current is a little higher, which we expect to be corrected itself,” said NRB pokesperson Bhaskarma-ni Gnawali.

The central bank has not intervened in interest rate directly, but has taken indirect measures to bring it to the desired level.

The NRB has directed commercial banks to introduce base rate (maximum cost of funds) for transparency in the interest rate regime. This would give customers a chance to go to banks that offer loans at the best bargained rate.

The average base rate of commercial banks was 9.7 percent in mid-April, according to the NRB. This means banks have been providing loans at a rate 3 percent higher than their maximum cost of funds. The central bank has been saying it plans to introduce the interest rate corridor which would guide the spread rate of banks .

According to a World Bank report, spread rate of Nepal’s banks and financial institution has reached the highest level in the last four years. The World Bank data reveal the spread rate was at 5.6 percent in 2008, which later came down to 4.4 percent before surging this year.

But bankers said the spread rate might have gone up due to low return from net liquid assets of banks and increased cost of deposits.

Source: The Kathmandu Post