BFIs Increase Spread Rate against the Directive of NRB

  3 min 19 sec to read
BFIs Increase Spread Rate against the Directive of NRB

February 2: Banks and financial institutions (BFIs) have increased the spread rate - the difference between the average interest rate of deposits and loans of banks – against the instructions of Nepal Rastra Bank (NRB). Banks that could not expand their business due to lack of liquidity did so to gain profit.

According to the unaudited financial statements published by the banks, most of the commercial banks increased the spread rate in the second quarter of the current fiscal year. Out of the 22 banks in operation, 17 increased their spread rates by mid-January 2023 compared to mid-October 2022. Four of them have lowered the spread rate while that of one commercial bank has remained stable.

After widespread criticism that the banks earning profit while other sectors were struggling due to the current economic crisis, NRB introduced a policy to reduce the spread rate through the first quarterly review of the monetary policy of the current fiscal year.

In the review of monetary policy, it is announced that the spread rate of commercial banks will be reduced from 4.4 percent to 4 percent and that of development banks and finance companies from 5 percent to 4.6 percent. In order to implement the announcement, NRB issued instructions in mid-December and asked BFIs to reduce the spread rate in two stages.

According to the instructions of NRB, the commercial banks will have to reduce the spread rate to 4.2 percent from mid-April and the development banks and finance companies will have to reduce it to 4.8 percent. From June, commercial banks should apply 4 percent and development banks and finance companies should apply 4.6 percent spread rate.

After the spread rate of the banks increased in the second quarter of the current fiscal year, there will be more pressure on the banks in the next quarter.

Right now the spread rate of Nabil Bank and Kumari Bank is above 4.4 percent.

In December, the spread rate of 19 banks was above 4 percent while the spread rate of 14 banks was above 4.2 percent. These banks have to reduce the spread rate to maintain the rate specified by the NRB in the next quarter.

President of Nepal Bankers Association and Chief Executive Officer of NMB Bank, Sunil KC says that banks will maintain the spread rate as per the instructions of NRB by the third quarter and that will reduce the interest rate of loans. He said, “As the banks have reduced the interest rate on deposits since January, the cost of capital will decrease in April, and the base rate will also decrease.”

 

No comments yet. Be the first one to comment.