KATHMANDU:
Although commercial banks are battling against the central bank’s decision to contain interest spread at five per cent, their first quarter financials show the net spread to be way below the regulatory limit.
Nepal Rastra Bank (NRB) had earlier asked financial institutions to maintain average difference in deposit and lending rates —also known as interest spread—within five per cent from the beginning of the third quarter of the current fiscal year. With the implementation date —mid-January—coming near, banks have started lobbying for revocation of the
central bank’s order calling it impossible to maintain. The Nepal Bankers’ Association (NBA), an umbrella body of commercial banks, had requested the central bank to reconsider its decision in writing two weeks ago.
NRB’s monthly macroeconomic report shows that average interest spread of commercial banks stood at 6.89 per cent in mid-October 2013. By mid-November the interest spread had further widened to 6.9 per cent, shows the report. However, first quarter financial reports of commercial banks published in various national dailies show average interest spread of 3.95 per cent as of mid-October.
According to quarterly financials of 28 commercial banks that published interest spread, only Lumbini Bank and Nepal Bangladesh Bank have maintained interest spread of over five per cent. Janata Bank, on the other hand, has the least net interest spread of 1.88 per cent.
Moreover, in the fourth quarter of the last fiscal year only seven of 31 commercial banks had reported net interest spread of above five per cent.
“It is true that interest spread of some banks is below five per cent. However, working under such a rigid band will be difficult for all banks in the long run. So we want it reconsidered,” informed a banker, who is also a member of the NBA.
The central bank has directed banks to calculate average interest spread by factoring in monthly average interest income and expenses, and average credit and deposits. They should then report about it to the regulator on a monthly basis from the beginning of the third quarter of the current fiscal year. The lower interest spread means lower profit for the banks and, thus, undesirable.
“NRB had decided to impose five per cent spread limit observing discrepancies in the interest rate regime of banks,” pointed out NRB spokesperson Bhaskar Mani Gyanwali.
“Central bank had been asking commercial banks to limit their interest spread at five per cent for a long time. But since they failed to heed our calls, we were compelled to fix the rate on our own,” he added.
Banks, on the other hand, are urging the central bank to show some flexibility.
“Even if we agree to maintain interest spread of five per cent, NRB should adopt some flexibility and change the formula for calculating interest spread,” said the banker, adding that cost of operation and idle funds are also transferred in the rates.
The battle between banks and the central bank to limit interest spread would only benefit large borrowers. Banks tend to reduce credit rates for large borrowers as the bigger size of loan for a longer period can compensate lower interest rates fixed on loans. However, smaller borrowers who have less negotiating power might still be charged higher rates.
Interest spread of banks in Q1
• Janata 1.85 pc
• NCC 2.60 pc
• Prime 2.83 pc
• Kumari 2.86 pc
• Kist 3.15pc
• Machhapuchhre 3.24pc
• Sidhhartha 3.33pc
• Civil 3.39pc
• Laxmi 3.39pc
• Sunrise 3.51pc
• Nepal Bank 3.59pc
• NIC 3.68pc
• Commerz and Trust 3.86pc
• Global IME 3.97pc
• NMB 4.04pc
• Bank of Kathmandu 4.12pc
• Mega 4.25pc
• Grand 4.29pc
• Sanima 4.43pc
• Nepal SBI 4.44pc
• Nabil 4.51pc
• Nepal Investment 4.67pc
• Himalayan 4.77pc
• Standard Chartered 4.79pc
• Everest 4.88pc
• Citizens 4.99pc
• Lumbini 5.11pc
• Nepal Bangladesh 5.96pc
• Not Available: Agriculture Development, Century, RBB
Source: THT
Although commercial banks are battling against the central bank’s decision to contain interest spread at five per cent, their first quarter financials show the net spread to be way below the regulatory limit.
Nepal Rastra Bank (NRB) had earlier asked financial institutions to maintain average difference in deposit and lending rates —also known as interest spread—within five per cent from the beginning of the third quarter of the current fiscal year. With the implementation date —mid-January—coming near, banks have started lobbying for revocation of the
central bank’s order calling it impossible to maintain. The Nepal Bankers’ Association (NBA), an umbrella body of commercial banks, had requested the central bank to reconsider its decision in writing two weeks ago.
NRB’s monthly macroeconomic report shows that average interest spread of commercial banks stood at 6.89 per cent in mid-October 2013. By mid-November the interest spread had further widened to 6.9 per cent, shows the report. However, first quarter financial reports of commercial banks published in various national dailies show average interest spread of 3.95 per cent as of mid-October.
According to quarterly financials of 28 commercial banks that published interest spread, only Lumbini Bank and Nepal Bangladesh Bank have maintained interest spread of over five per cent. Janata Bank, on the other hand, has the least net interest spread of 1.88 per cent.
Moreover, in the fourth quarter of the last fiscal year only seven of 31 commercial banks had reported net interest spread of above five per cent.
“It is true that interest spread of some banks is below five per cent. However, working under such a rigid band will be difficult for all banks in the long run. So we want it reconsidered,” informed a banker, who is also a member of the NBA.
The central bank has directed banks to calculate average interest spread by factoring in monthly average interest income and expenses, and average credit and deposits. They should then report about it to the regulator on a monthly basis from the beginning of the third quarter of the current fiscal year. The lower interest spread means lower profit for the banks and, thus, undesirable.
“NRB had decided to impose five per cent spread limit observing discrepancies in the interest rate regime of banks,” pointed out NRB spokesperson Bhaskar Mani Gyanwali.
“Central bank had been asking commercial banks to limit their interest spread at five per cent for a long time. But since they failed to heed our calls, we were compelled to fix the rate on our own,” he added.
Banks, on the other hand, are urging the central bank to show some flexibility.
“Even if we agree to maintain interest spread of five per cent, NRB should adopt some flexibility and change the formula for calculating interest spread,” said the banker, adding that cost of operation and idle funds are also transferred in the rates.
The battle between banks and the central bank to limit interest spread would only benefit large borrowers. Banks tend to reduce credit rates for large borrowers as the bigger size of loan for a longer period can compensate lower interest rates fixed on loans. However, smaller borrowers who have less negotiating power might still be charged higher rates.
Interest spread of banks in Q1
• Janata 1.85 pc
• NCC 2.60 pc
• Prime 2.83 pc
• Kumari 2.86 pc
• Kist 3.15pc
• Machhapuchhre 3.24pc
• Sidhhartha 3.33pc
• Civil 3.39pc
• Laxmi 3.39pc
• Sunrise 3.51pc
• Nepal Bank 3.59pc
• NIC 3.68pc
• Commerz and Trust 3.86pc
• Global IME 3.97pc
• NMB 4.04pc
• Bank of Kathmandu 4.12pc
• Mega 4.25pc
• Grand 4.29pc
• Sanima 4.43pc
• Nepal SBI 4.44pc
• Nabil 4.51pc
• Nepal Investment 4.67pc
• Himalayan 4.77pc
• Standard Chartered 4.79pc
• Everest 4.88pc
• Citizens 4.99pc
• Lumbini 5.11pc
• Nepal Bangladesh 5.96pc
• Not Available: Agriculture Development, Century, RBB
Source: THT
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