Decreased bank interest rates good news for share traders
ShareSansar, October 3:
As the commercial banks do not have enough scope to invest in other sectors such as real estate, infrastructure, hydropower and commodities despite high liquidity in the banking system, they have been decreasing their interest rates lately to attract borrowers.
As the BFIs are also turning to the stock market to provide share loans, which entails more returns in short run, this has been fueling trading at Nepal Stock Exchange Limited (NEPSE).
The level of liquidity can also be easily gauged from the fact that the Nepal Rastra Bank (NRB) has issued four reverse repos in a month’s time to absorb excess cash in the banking system.
The interest rates of the major commercial banks has been slumping over the past three months, which vindicates the fact that they are desperately looking for both short-term as well as long-term borrowers, besides looking for investment opportunities in the stock market as an appropriate strategy to manage their portfolios.
The increased number of advertisements being issued by the commercial banks to promote lending schemes also hint at this fact.
All the leading commercial banks such as Nabil, Standard Chartered, Everest and SBI Nepal have reduced their rate of interest on both fixed and saving deposits as well as for loans.
While Nabil was charging 6 and 3 to 4.5 percent interest rates on the fixed and saving deposits, respectively in August, the rates have gone down to 5.5 percent on the fixed deposits and 2.5 to 4 percent on saving accounts now.
It has also slightly reduced the interest rate on lending from 12.5 to 14 percent to 11.5 to 14 percent.
Similarly, Nepal Investment Bank Limited and most of the commercial banks have also reduced its interest rates on both deposits and lending by around 0.5 percent.
Economists and other financial experts attribute the excess liquidity in the capital market to the timely and full budget announced by the government for the current fiscal year, the announcement of the Constituent Assembly election on November 19.
The surging price of US dollar, which leads to increased volume of remittance as well as the upcoming festive season have also led to excess liquidity in the system, they add.
As BFIs are barred from cross-lending, they are aiming the primary as well as secondary share market as an appropriate investment opportunity to make good returns, including the dividends.
Recently concluded IPOs of Sana Kisan Bikas Bank and Rural Microfinance Development Center (RMDC) were hugely oversubscribed largely due to the investments made by the commercial banks and other BFIs.
