Excess liquidity forces banks to slash interest rate; sends positive signal to investors

ShareSansar, Sept 19:

If you are planning to build home or buy a cool new bike or a car, this is the right time to invest – as the commercial banks are offering loans at a low interest rate.

The commercial banks are offering loans at 7 to 10 percent per annum, down from around 14 percent they charged just a few months back.

The average interest rate on loan, which hovers around 8 percent, is the lowest in almost four years.

The BFIs have been compelled to slash the interest rates due to excessive fluidity in the banking sector.

Standard Chartered Bank is offering the lowest interest rate: 7.75.  Other commercial bank’s average interest rates range from 9.49 to 9.99 percents.

Commerz and Trust, Himalayan, Sanima, Machhapuchhre, the Bank of Kathmandu, NIC, Asia and a few other banks have recently decreased their interest rate.  

Currently the commercial banks alone have Rs 10 kharba and 19 arba in deposit, which is the highest amount ever. On the other hand, they have been able to issue loans worth Rs 19 arba only.

Rs 19 arba has been deposited in the banking system in the current fiscal year alone.  After three years, the Nepal Rastra Bank had to issue two reverse repos earlier this month to absorb excess cash in the banking system.

Bankers maintain that there is a high fluidity in the market because the government was able to duly bring the budget for the current fiscal year this time around.

The timely budget injected new lease of life in the market and the investors started to deposit their money in banks, they said, adding the onset of the festive season also helped boost fluidity.

The Chief Executive Officer of Commerz and Trust Bank, Anal Raj Bhattarai said that the bankers are compelled to reduce the interest rate as a very few customers are seeking loans at this point.

The lack of huge investment opportunity, huge investment by the government and the political parties in the run-up to the second Constituent Assembly election as well as the surging US dollar also compelled the central bank to issue reverse repos, the bankers added.

The high liquidity has also led to decreased inter-banking lending and the lending interest rate.