NRB may relax spread rate provision, Bankers say

KATHMANDU, JAN 31 - The Nepal Rastra Bank ( NRB ) has indicated that it may relax the provision that requires banks to maintain the rate at five percent within the current fiscal year, bankers have said.

After their meeting with NRB Governor Yuba Raj Khatiwada, Nepal Bankers’ Association (NBA) officials said the central bank may revise the existing method of calculating the spread rate.

NBA had sought a revision in the provision, stating that it would affect banks having a huge deposit base. The bankers were of the view that the current calculation method of directly reducing the interest rates on deposits and credit without calculating administrative costs created problems for many banks.

“Banks can invest just 80 percent of their total deposits,” said a banker who took part in the meeting. “The exclusion of operating cost from the calculation of spread rate has made life difficult for the banks.” He said Governor Khatiwada has assured of considering their concerns.

“Government-owned banks will be hit hard if the spread rate is calculated without administrative cost involved,” said a CEO of another

bank. “The chances of a revision are high as state-owned banks will be severely hit if not done so.”

NRB Spokesperson Bhaskarmani Gnawali said it’s not that the current provision cannot be revised, but it has not been changed so far. He said the provision could be revised if such a measure would benefit both customers and the banks.

However, the compulsory provision has brought down spread rate of many banks. Out of 12 banks that made public their second quarter financial status, five of them have spread rate less than 5 percent. Nepal Bank, NMB Bank, Sanima Bank, Commerz and Trust Bank, Laxmi Bank, Century Bank and Siddhrtha Bank have brought down their spread rates to below 5 percent.

NRB had directed on October 10, 2013, to bring down their spread rates below 5 percent within the current fiscal year. But NBA on December 20 had urged the central bank to review the decision.

Spread Rates Compared:

Bank                      Spread rate (%)
 

Nepal Bank                         3.59

BoK                                    6.05

Kist Bank                            6.66

NMBBank                            4.46

Citizens Bank                      6.59

Global IME                           5.96

Sanima                               4.12

Commerz and Trust             3.99

Laxmi Bank                         3.75

Century Commercial            4.93

Nepal Investment Bank        6.63

Siddhartha Bank                  4.09

 

(Source: The Kathmandu Post)