As interest rates drop, there is no demand for loans

"Even though deposits are increasing, loan demand is very slow," said Sunil KC, president of Nepal Bankers' Association, "due to laxity in the economy, there is no new loan demand even from industry and infrastructure sector. There has also been a decrease in the opening of bonds. He said that this situation has come about because the economy is still lax as the demand for loans should automatically increase when interest rates are falling. Looking at the data since one year after the

, the average interest rate of banks' loans has decreased by about 2 percentage points. As of last January, the weighted average interest rate of commercial banks' loans is 11.08 percent. The weighted average interest rate of loans of commercial banks was 13.03 percent in January 079. Generally, when the interest rate of loans decreases, the flow of loans should increase. However, due to the lack of enthusiasm to invest more in the private sector, the credit demand has decreased and this has affected the overall economy, experts say.

In recent years, banks and financial institutions have been continuously reducing interest rates on deposits. As the interest rate on deposits has decreased, the base rate of banks has decreased and it has also reduced the interest rate on loans. According to Rashtra Bank, the weighted average interest rate on deposits of commercial banks was 7.01 percent, 8.26 percent of development banks and 9.45 percent of finance companies. The weighted average interest rate of deposits of commercial banks remained at 8.41 percent in January 079. Besides, all the banks and financial institutions have reduced the deposit interest for Chait. Banks and financial institutions have reduced deposit interest for March when there is sufficient liquidity in the financial system and loan demand is not increasing.

According to the instructions of Nepal Rastra Bank, banks and financial institutions have to publish the interest rate for the next month within the last day of the previous month. The said interest rate cannot be changed within one month. For this reason, banks and financial institutions have announced the interest rates for the coming Chait on Wednesday.

Out of the 20 commercial banks in operation, all but NIC Asia have reduced interest rates in March compared to February. NIC Asia has increased the interest rate by 0.54 percentage points in March compared to this February. However, Prabhu and Global IME Bank have kept the interest rate constant. According to the new interest rate, the highest interest rate on one-year personal term deposits in March is 8.54 percent of NIC Asia and the lowest is 5.66 percent of Agricultural Development Bank. As the interest rate on deposits decreases, the interest rate on loans will automatically decrease as the base rate will decrease. According to Rashtra Bank, the average base rate of commercial banks is 9.06 percent, development banks 11.13 percent and finance companies 12.70 percent in January 2018. In January last year, the average base rate of commercial banks was 10.72 percent.

"Now the main problem of banks is the decrease in loan demand and increase in non-performing loans (NPA)," banking expert Parshuram Kunwar Chhetri said, "These problems have come due to the slowdown in the economy." Due to economic relaxation, the morale of the private sector has not increased. He said that the effect of this is that the demand for credit cannot increase and the economy is not running. "The government has not done any activities to increase the confidence of the private sector, nor has it encouraged them to increase their investment by increasing the capital expenditure on a large scale," he added, "However, in recent days, the Prime Minister and Finance Minister have been heard saying that they will not arrest the private sector." However, the words of the ministers alone are not enough to boost the morale of the private sector, which has been declining for a long time.' He also said that interest rates are no longer a problem in banks as the interest rate is continuously decreasing and there are signs of further decrease. "The interest rate of deposits of more than one year has barely reached the same level as compared to Indian banks," Kunwar added, "The problem now is that the demand for loans has not increased and there is no sign of increasing in the near future." Increasing non-performing loans reduce bank profits, pressure on primary capital, lending. He said that there will be a decrease in capacity and if the loan given by him is not taken, there will be no enthusiasm for providing more loans.

From last July to this February 26, 4 trillion 12 billion deposits have been collected in banks and financial institutions, while lending is only 2 trillion 11 billion rupees. As of January, loans from banks and financial institutions to the private sector were 1 trillion 97 billion 21 crores (4.1 percent). By January of last year, such loans had increased by 1 trillion 48 billion 120 million (3.2 percent). On an annual point-by-point basis, loans from banks and financial institutions to the private sector have increased by 4.7 percent at the end of January 2018.

Similarly, until last January, deposits in banks and financial institutions increased by 3 trillion 97 billion 200 million (7.0 percent). During the same period of the previous year, such deposits increased by 2.53 billion 97 crores (5 percent). According to the data of the Rashtra Bank, deposits in banks and financial institutions increased by 14.4 percent on an annual point basis.