October 16: ßBanks and Financial Institutions (BFIs) will be setting fixed interest rates on personal term loans, including home and automobile loans from October 17.
As per the direction given by the central bank to the BFIs to publish their stable interest rates by the end of Ashoj (mid-October), Mega Bank, Himalayan Bank and Machhapuchhre Bank have published their fixed interest rates on personal loans for up to 15 years. These banks have fixed the interest rates for term loans within the range of 10 percent and 13 percent.
In addition, other banks and financial institutions have also started their final homework to make the fixed interest rate public by October 16. Mega Bank has maintained a fixed interest rate by adding 5 percent premium to their base rate (8.30 percent) on all types of personal loans with more than one year to maturity.
Similarly, Machhapuchhre Bank has fixed the interest rate at 9.89 percent for home loans with the maturity period of up to 5 years, 10.89 percent for home loans for maturity period from 5 to 10 years and 11.89 percent for home loans with the maturity period of more than 10 years. Interest for auto and hire-purchase loans has been fixed at 9.99 percent for the maturity period up to 5 years and 10.99 percent for maturity period ranging from 5 to 10 years.
For five-year maturity period, Himalayan Bank has fixed the interest rate of personal home loan at 9.89 percent, convenience loan and education loan at 9.99 percent and other collateral loan at 10.99 percent. Similarly, for loans with a maturity period ranging from 5-10 years, the bank has fixed the interest rates of home loans at 10.99 percent and convenience loans and education loans also at 10.99 percent. Likewise, for a maturity period of 10-15 years, interest rates for home loans has been fixed at 12.14 percent. Sushil Joshi, Chief Information Officer of the bank says that different interest rates have been fixed for different periods of hire-purchase loans.
Joshi, who is also the general manager of Himalayan Bank, said that the bank fixed their interest rates by observing the interest rate on deposits and loans in the past. "Mismatches can happen in Nepal as you do not get long-term deposits. Most of the ten-year institutional deposits have been kept by only by insurance companies. Long-term personal deposits don't really come in," he told New Business Age, adding, “That’s why we compared the deposits and fixed the interest rates by adding a little margin to the loan rates.”
Other banks are also likely to set their fixed interest rates in a similar pattern. At present, it seems that the fixed rates will be expensive for the customers. As there is no demand for loans in the market right now, the banks are giving home and auto loans at or below their base rate, which comes around 7.7 to 9 percent.
Since the fixed interest rate, which was initially high, will not go higher in the future, the borrower does not need to worry about the increment on rates. However, NRB has also made an arrangement that allows the customers to not opt for the fixed interest rate.
Banks have been announcing their fixed interest rates to comply with the directive given by the central bank, but the Nepal Bankers' Association has said that it is not practical and has suggested to fix a fixed interest rate only for a maximum of five years. Deputy Chief Executive Officer of Citizens Bank, Bodhraj Devkota, says that they are busy in determining their fixed interest rate even though the suggestion by the association is under consideration.
Chairman of the Nepal Bankers Association, Bhuwan Kumar Dahal says that Sanima Bank is also in final stage of fixing their interest rates.