Decreasing bank interest good for share market

ShareSansar, November 6:

Decreasing bank interest rate may have adverse impact on the public since it could flare inflation, but it is, nonetheless, good news for the share investors.

It will also aid the real estate sector, which has been stagnant for months now.

As the banks slash their interest rates largely due to surplus liquidity in the system, a few depositors transfer the amount from the current or call accounts to savings and fixed deposits, while the investors usually exploring areas of better returns.

This is also substantiated by the latest statistics of Nepal Rastra Bank.

The amounts deposited on current accounts have plummeted by a whopping 16.3 percent and call account by 0.29 percent. A chunk of the dip in the current account is attributed to the payment made by the government to the contractors at the beginning of the new fiscal year.

The fact that the deposit in saving accounts have increased by just 1.4 percent and the fixed account by 2.04 percent also validates that the investors are looking for higher returns outside the banking system.

Had the economy had been in a very bad shape and had the political crisis deepened, there could have been a threat of capital flight, which seems very unlikely in the prevailing scenario.

With the stock market already in the bullish trend, a huge amount of money in the banking system is apparently flowing to the share market.

This can also be validated from the statements made public over the recent weeks by senior executives of many of the leading commercial banks and other BFIs that they are turning to the stock market for appropriate portfolio diversification to maximize the profit, especially in absence of better investment opportunity elsewhere.

Likewise, they are currently lobbying with the Securities Board of Nepal (SEBON) and other regulatory authorities to bring in the real sector into the share market.

Likewise, the realty market in the capital and other urban centers in the country are also improving after the BFIs decreased the interest rates.

Land Revenue Offices across the country have reported an impressive 40 percent increment in land registration fees in the current fiscal year.

The BFIs have also been offering home and land loans at an attractive 9 to 11 percent.

Only a few months back the commercial banks used to charge up to 17 percent interest on such loan while some other BFIs were charging even higher.