Deposit rate likely to go up
KATHMANDU, MAR 18:
Depositors can expect interest rates to go up as signalled by rising interbank lending rate among financial institutions brought on by tighter liquidity.
The rate has shot up to new heights in the last two months. It even reached 6.7 per cent in mid-February, then subsided but once again in the first week of March it reached 5.8 per cent — moving in tandem with the liquidity situation of banks. Interbank lending is considered the best short-term liquidity management tool as the needy ones can borrow and the ones with surplus cash can earn an interest.
The interbank lending rate among commercial banks that was at around 0.71 per cent in the second quarter of the current fiscal year has reached 2.29 per cent in the seventh month. “The interbank rate is pretty much volatile and keeps changing track based on short-term liquidity,” said vice president of Nepal Bankers’ Association Upendra Poudel.
A higher interbank rate points out the acute need of cash for banks and financial institutions and vice versa. Moreover, these rates are one of the guiding factors for interest rates. The minimal interest rate for deposits being offered by banks has deterred depositors from keeping money in banks.
The tight liquidity situation that has started to compromise the ability of the banks to lend for projects is compelling them to revise the interest rate. The amount borrowed and lent within commercial banks has more than doubled in the seven months of the current fiscal year in comparison to the corresponding period of the previous fiscal.
Interbank lending among class ‘A’ institutions stood at Rs 259.1 billion in the last seven months, which was at Rs 112.4 billion a year back. Moreover, the amount of interbank lending has jumped in the seventh month to Rs 84.6 billion — double the amount demanded by banks in the sixth month.
“Though the current liquidity situation is adequate, depositors can expect interest rates to go up to some extent as some banks are in acute need to increase their deposit base,” said Poudel.
As growth in deposits has contracted of late while lending has become expansive, more banks are seeking interbank lending to meet short-term fund mismatch. Deposit mobilisation of banks and financial institutions increased by 4.8 per cent to Rs 48.69 billion in the seven months, according to Nepal Rastra Bank’s report. Such deposit mobilisation had increased by 10.9 per cent in the corresponding period of the previous year.
However, credit increased by 12 per cent to Rs 115.89 billion in the review period. “Since our deposit base is limited and institutional depositor dependent, if a few banks increase deposit rates others will also have to follow or risk losing depositors,” pointed out Poudel who is also chief executive of NMB Bank.
Three years back, during the acute liquidity crunch, interbank lending in the Nepali financial market had reached as high as 12 per cent. Then the saving deposit rates were as high as six per cent on average and fixed deposits paid about eight per cent to depositors.
“This is only a phase of inter rate cycle, and as the rates have reached rock bottom it has to rise up,” said spokesperson for NRB Bhaskar Mani Gyanwali, assuring that interbank rate between five to six per cent can be considered normal.
Source: THT
