How much interest rate banks are offering on Fixed Deposits? Can we expect interest rate of loan to be down any time soon?
Sun, Aug 27, 2017 6:59 AM on Latest, Exclusive, Featured, Stock Market,
The banks and financial institutions (BFI’s) interest rate which was skyrocket during the last 6 months has started to normalize and coming down since last few weeks. The interest rate was hiked mainly due to shortage of investable fund in the banking channel. The main reason for shortage of funds was due to slow down in capital expenditure by the government, declining growth rate of remittance flow, aggressive lending by the banks in initial quarter of last FY, etc.
Understand why the bank interest rate start falling in last few weeks.
The above table clearly depicts that during the last 2 months more than Rs 100 billion was added on the banking system. This additional deposit was created due to heavy spending by the government during the end of last fiscal year. The excess liquidity in the banking system has forced the banks to lower the interest rate offered to their customers.
Interest rate offered by the different commercial bank on Fixed Deposits (FD)
Most of the commercial banks that offered more than 12% interest rate on fixed deposit few months back have started lowering it gradually.
What are the chances banks offering lower interest rate to loan customers?
In last 8 months, almost all commercial banks have offered high interest rate on various deposit products which led higher cost of fund and base rate of banks. “Base rate”, as defined by Nepal Rastra Bank (NRB), includes all cost of funds, cost of operation, cost for maintaining minimum cash balance and return on their assets. This is the minimum rate banks have to charge to remain in profit.
Consequently, the base rate of most of the banks rises due to higher cost of fund, the banks are bound to offer loans at interest rate higher than their respective base rate.
Recent decline of deposit interest rate entails lower interest rate on loan products too. But, are banks ready to offer loan at lower rate, any time soon? The major problem most of the banks are facing is their higher existing base rate. Until and unless BFI’s cost of fund and base rate won’t decline, they won’t be able to offer cheap loan like before. Taking deposits at lower interest rate will gradually make banks base rate down which consequently make their loan rates down as well.
Base rate of different commercial bank as of Ashad End, 2074
The above table clearly shows that the banks with lower base rate can offer loans at lower interest rate whereas, the banks with higher base rate still needs more low cost deposits to lower their base rate.
What is the probability of stabilize interest rate in the months to come?
The above table clearly depicts that during the last 2 months more than Rs 100 billion was added on the banking system. This additional deposit was created due to heavy spending by the government during the end of last fiscal year. The excess liquidity in the banking system has forced the banks to lower the interest rate offered to their customers.
Interest rate offered by the different commercial bank on Fixed Deposits (FD)
Most of the commercial banks that offered more than 12% interest rate on fixed deposit few months back have started lowering it gradually.
What are the chances banks offering lower interest rate to loan customers?
In last 8 months, almost all commercial banks have offered high interest rate on various deposit products which led higher cost of fund and base rate of banks. “Base rate”, as defined by Nepal Rastra Bank (NRB), includes all cost of funds, cost of operation, cost for maintaining minimum cash balance and return on their assets. This is the minimum rate banks have to charge to remain in profit.
Consequently, the base rate of most of the banks rises due to higher cost of fund, the banks are bound to offer loans at interest rate higher than their respective base rate.
Recent decline of deposit interest rate entails lower interest rate on loan products too. But, are banks ready to offer loan at lower rate, any time soon? The major problem most of the banks are facing is their higher existing base rate. Until and unless BFI’s cost of fund and base rate won’t decline, they won’t be able to offer cheap loan like before. Taking deposits at lower interest rate will gradually make banks base rate down which consequently make their loan rates down as well.
Base rate of different commercial bank as of Ashad End, 2074
The above table clearly shows that the banks with lower base rate can offer loans at lower interest rate whereas, the banks with higher base rate still needs more low cost deposits to lower their base rate.
What is the probability of stabilize interest rate in the months to come?
- Unlike last fiscal year, this year there is elected body on Local level so there is high chance of effective implementation and spending of budget on a timely basis. This will insure adequate flow of money in the banking and financial system.
- Two elections should happen within Mangsir this year. This will also further create fresh liquidity in the market.
- Growth rate of remittance and foreign investment is expected to improve this year. This will further increase money supply in the banking system.
