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Credit rate could rise
2018-02-04

It is likely that banks will hike the interest rate on credit as the base rate of a majority of banks increased in the second quarter as compared to the first quarter. Increased cost of deposit collection is the major reason behind the increase in the base rate of the banks.

As per the financial statements of first half of current fiscal published by 28 commercial banks in operation, base rate of 15 banks rose compared to the first quarter (Q1) of this fiscal.

Banks started offering higher interests on deposit schemes to attract deposits so that they could mobilise more credit to expand profit. However, deposit growth has been sluggish despite attractive offers made by the banks and financial institutions (BFIs).

In the first half of the ongoing fiscal 2017-18, commercial banks mobilised loans worth Rs 1,911.89 billion against deposit collection of Rs 2,214.51 billion. Average deposit growth was at 16 per cent, whereas credit growth was at 21 per cent in the review period. This clearly reveals the mismatch in deposit collection and loan expansion, as banks are allowed to expand credit up to 80 per cent of the deposit plus core capital of banks.

Average credit to core capital plus deposit (CCD) ratio of the banks was 77.41 per cent in the second half, which means they are close to the permissible CCD level of 80 per cent and the central bank has warned the banks to maintain balance in deposit collection and credit disbursement.

Slow deposit growth has put pressure on the banks to make further efforts to collect deposits. But, bankers say deposit collection will rise once the government’s capital expenditure increases. But due to increase in base rate in the second quarter, interest rate on credit could remain high in the third quarter (Q3) as well.

As per Nepal Rastra Bank’s rule, banks have to publish their base rate every three months and they can change the interest rates at three-month intervals based on the changes in base rate. Base rate is calculated on the basis of expenses incurred by BFIs to collect deposits, plus 80 per cent of bank’s overhead expenses (salary and rent), plus up to 0.75 per cent profit. If a bank’s returns on government securities is lower than deposit collection rate, they can add the shortfall in the base rate.

As per the second quarter reports, Standard Chartered Bank had the lowest base rate among all the banks, which stood at 5.8 per cent, followed by Nabil at 6.92 per cent, Nepal Bank at 6.93 per cent, Everest Bank at 7.84 per cent and Nepal Investment Bank at nine per cent.

Similarly, base rate of Agricultural Development Bank was the highest in the industry at 11.53 per cent followed by Civil Bank at 11.5 per cent, Nepal Credit and Commerce (NCC) Bank at 11.45 per cent, Century Commercial Bank at 11.43 per cent and Nepal Bangladesh Bank at 11.39 per cent.

Interest rate on credit could be relatively low in those banks that have low base rates.

Whose base rate went up?
Bank      Q1     Q2
Century     11.13%     11.43%
Kumari     11.15%     11.17%
Citizens     10.72%     11.02%
Mega     10.72%     10.96%
Sunrise     10.78%     10.96%
Laxmi     10.66%     10.88%
Machhapuchchhre     10.48%     10.67%
Siddhartha     10.28%     10.58%
NCC     10.43%     10.45%
NMB     10.21%     10.35%
Rastriya Banijya     5.98%     9.71%
Nepal SBI     9.32%     9.50%
Nepal Investment     8.91%     9%
Nepal     6.90%     6.93%
Nabil     6.69%     6.92%

Source: Financial statements of commercial banks

source: the himalayan times, 4 feb 2018

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