Everest Bank will be the cheapest bank to get loans from, whereas Century Commercial Bank will be the most expensive, according to the base rate of some 20 banks.

Everest Bank’s base rate stood at 7.04 per cent, followed by Nabil Bank’s 7.26 per cent, whereas Century Commercial Bank’s base rate stood at 11.07 per cent, on the basis of base rate published by some 20 banks — out of the 32 commercial banks — till date.

Of the 20, two banks have base rate lower than eight per cent, whereas four banks have in between eight per cent to nine per cent, seven banks between nine per cent to 10 per cent, and seven above 10 per cent.

“The base rate came into effect from mid-January, and within the next week, the remaining 12 banks will also publish their base rates,” according to the central bank.

“There could be some other banks with a base rate lower than that of Everest Bank,” according to a banker, who opined that the base rate alone may not be enough for a bank to provide cheap loans.

“But the base rate gives an idea on the minimum interest rate that banks could charge on lending,” he said, adding that a borrower’s credit worthiness is equally important for a bank.

Banks cannot extend loans to borrowers below the base rate now as it is expected to make credit pricing more transparent. Nepal Rastra Bank (NRB) has now made it mandatory for all commercial banks to fix lending rates based on base rate that will set the floor for credit rates and give borrowers a basic idea on how cheap they can get credit for.

“However, banks can add a minimum premium on the base rate depending on the quality of collateral, and risk of the loan and borrower,” according to a top official at NRB.

“If a borrower has a safe collateral like government bonds and also for priority sectors identified by the government, banks may not add any premium,” he said, adding that the central bank wants the stability of the base rate regime, and won’t interfere in the lending rate at present.

Technically, the banks will now have to publish the base rate regularly.

NRB had asked commercial banks to calculate the base rate — as reference rate — for lending on the basis of five indicators; cost of fund, Cash Reserve Ratio, Statutory Liquidity Ratio, operational cost, and Return on Assets, to make the interest rate regime transparent for borrowers.

The base rate will ensure the stability of the monetary market in the current volatile situation as interest rates are fluctuating and could hit the sustainability and long-term stability of the financial system, according to the central bank.

Though NRB had asked the banks to implement the base rate before Tihar, bankers wanted some more time for calculation and study on its sustainability.

source: The Himalayan Times,9 Feb 2013