Although commercial banks of Nepal have started offering easy loans to their clients due to sufficient amounts of loanable funds, they are unable to raise the demand for loans from the borrowers.

According to Nepal Rastra Bank (NRB), the total deposits with the banks and financial institutions (BFIs) stood at Rs 5.459 trillion as of Tuesday, while they lent Rs 4.842 trillion. The commercial banks alone recorded deposits collection and loans of  Rs 4.815 trillion and Rs 4.295 trillion, respectively.

Due to the excessive rise in deposit collections compared to the slow pace of loan disbursement, the credit-deposit ratio has dropped to 85.24 percent against the NRB mandatory policy rate of 90 percent. The central bank’s data shows that the BFIs are having excess liquidity of over Rs 200 billion to provide credits to the potential borrowers.

After an ease in the liquidity position with them, the base interest rate of the commercial banks has also fallen to as low as 10.61 percent. Similarly, they have started offering loans for interest rates of 11.75 percent annually. Few months ago, the interest rates used to stand at more than 15 percent.   

According to bankers, they have now started to focus on offering home loans by reducing their interest rates. Apart from downsizing their interest rates, many of them have even anno unced various schemes to attract their clients.

Sunil KC, president of the Nepal Bankers’ Association, said the banks have switched their focus on the home loans due to the slowdown in the economic activities of late. “However, the banks’ move has failed to attract the borrowers mainly due to the ongoing recession,” he said.

According to a report of the National Statistics Office (NSO), Nepal achieved an economic growth rate of a mere 0.8 percent in the first quarter (between mid-July and mid-October). Likewise, the growth rate fell to a negative of 1.1 percent in the second quarter (between mid-October and mid-January)

Furthermore, the NSO has projected that the country’s economic growth rate will be just 2.16 percent in the current fiscal year, almost four times lower than the government’s target.

KC said even the reduced interest rates have not been able to boost the confidence of the borrowers, mainly due to the poor performance of the economy.

source: republica, 7 may 2023