Deposit interest decreased again in June

Banks' interest rates on ordinary savings have fallen by an average of 0.075 percentage points. For June, 9 banks have reduced the interest rate of ordinary deposits, while 2 have increased it and 9 have kept it stable. Along with this, the maximum interest rate of one-year individual term deposits of commercial banks has remained at 6.876 percent on average and 4.916 percent of ordinary deposits in June. In May, the average maximum interest rate of fixed deposits was 6.998 and 5.019 percent of ordinary.

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. This is why banks and financial institutions have announced interest rates for June on Friday. Experts in the financial sector say that the main problem faced by the banks is the decrease in loan demand and the increase in non-performing loans (NPAs). These problems are caused by the slowdown in the economy. The morale of the private sector has not increased due to economic stagnation. They say that due to its effect, the economy is not running because the demand for credit cannot increase.

081 Average base rate of commercial banks is 8.34 percent, development banks 10.15 percent and finance companies 11.61 percent. In March last year, the average base rate of commercial banks was 10.27 percent. Bad loans of banks have increased due to non-recovery of loans as expected in recent months. Due to the pressure on the banks' capital funds due to the provision of losses due to bad loans, experts say that although there is some reduction in their lending capacity, there is sufficient liquidity for investment. The main reason for the non-increasing credit demand is economic laxity. There is no problem with bank interest rate, price increase etc. They say that the private sector is not ready for further investment expansion due to the decrease in market demand and decrease in commercial activities.

While there is sufficient liquidity in the overall financial system, some banks are under pressure from primary capital funding and total capital funding. Therefore, they have not been able to disburse loans as expected. However, experts say that there is sufficient capital for lending in the overall financial system. In order to solve this problem, the National Bank has prepared to provide the facility to banks and financial institutions to use the financial tool called 'Perpetual Preference Share'. In the third review of the monetary policy, the National Bank announced that the necessary facilitation will be done to bring additional instruments into use in order to further strengthen the capital of banks and financial institutions.

The financial system has an over-liquidity situation. Monthly reports have shown that Rastra Bank has to spend a large amount of money for liquidity management. From last July to May, banks and financial institutions have used 8 trillion 4.71 billion (business-based) liquidity from Rashtra Bank through permanent liquidity facility of 1.2 billion and 8 trillion 3.51 billion through overnight liquidity facility. During the same period, 7 trillion 44 billion 20 crores were collected through deposit collection and 13 trillion 87 billion 85 crores through permanent deposit facilities, totaling 21 trillion 32 billion 5 crores (based on business), according to the report.

081 The weighted average interest rate on deposits of commercial banks is 6.35 per cent, development banks 7.31 per cent and finance companies 8.55 per cent. The weighted average interest rate on deposits of commercial banks in Baisakh was 8.08 percent. The weighted average interest rate on loans is 10.34 per cent for commercial banks, 11.89 per cent for development banks and 13.11 per cent for finance companies as of 081 Baisakh.

080 The weighted average interest rate on loans of commercial banks was 12.65 percent.

From July to May of last year, deposits in banks and financial institutions have increased by 4 trillion 43 billion 80 million. This is an increase of 7.8 percent. During the same period last year, such deposits increased by 370 billion 78 crores (7.3 percent). On an annual point basis, deposits in banks and financial institutions increased by 12.8 percent at the end of May 2018.

Credit from banks and financial institutions to the private sector has increased by 225 billion 240 million (4.7 percent) till last May. In the same period of last year, such loans increased by 1 trillion 53 billion 17 crores (3.3 percent). On an annual point-by-point basis, the data of Rashtra Bank has increased by 5.2 percent from banks and financial institutions to the private sector at the end of May 2018.