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Kathmandu Sunday August 05, 2001 Shrawan 21, 2058.
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Credit bargaining tough in
banks
By Satyendra Timilsina
KATHMANDU, Aug 4 – Against the central
bank’s directive that allows a bargaining up to 0.5 per cent with the parties while
extending loans and advances in the declared interest rates of commercial banks, the
actual bargaining range has been up to 2 per cent.
The sources at the credit departments of some
commercial banks informed The Kathmandu Post that sanctioning loans at lower rate than
declared rates is not a new practice to keep their tight griping on some reliable parties.
"Growing competition among banking sector along with soaring liquidity are also
influential factors for such widespread practice," sources said. They admit that the
bank has been issuing loans at 9 per cent rate against the declared rate of 11 per cent.
"There is almost no competition in the
interest rates on deposits but the competition is much tough in the interest rate charged
on loans and advances. Due to excess reserves of funds with the banking system, the actual
lending rate is lower than the mentioned rates." says an officer at Nepal Bangladesh
Bank.
Some officials of the commercial banks argued
that the competition has become extremely tough as all the commercial banks are passing
through excess liquidity position as the result of shrinking demand of credits. The lack
of reliable huge projects for large scale long-term investment, which help to reduce cost
of capital, are the major problem for the commercial banks, they said. "In such
situation if the bank fails to attract the lenders by providing extra incentives and by
lowering interest rate, how can commercial banks sustain?" they asked.
The problem of excess liquidity with the
commercial banks has remained one of the major factors that has reduced the interest rates
on both deposits and lending far below than two years back. The average interest rate in
one year fixed deposit was as high as 10 per cent in 1999 which has declined to touch
around 6 per cent. Similarly, during the same period, the industrial lending rate has also
decreased to remain 12 per cent on average from 16 per cent
In addition, the four fold over subscription of
treasury bills’ purchase witnessed in recent weeks also clearly indicates the excess
liquidity position of the banking system.
Experts divide the current banks into two
categories. In the first category there are some banks engaged in the profit-motive
investments for whom the bargaining in the lending interest rate has become essential.
While, there are some other banks, which are enjoying handsome profits not through
investments, but simply playing in the foreign currency market.
"Nepalese banks can be divided into two
groups. Banks that are playing in the money market with less investment activities and the
Banks with higher engagement on such activities," said one of the commercial bank
official.
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