"If the rule poses practical problems‚ NRB will try to accommodate concerns of the banks - Bhaskar Mani Gnawali‚ Spokesperson for NRB "
Maintaining interest spread at five per cent still seems to be a struggle for banks, with less than three months remaining for the regulatory cap to come into effect.
The interest spread of the banks till mid-March remained at 6.73 per cent, while the third quarter statistics of a few banks remain well above five per cent. So far, only three banks have published third quarter reports, which reveal all three of them to have a spread of above five per cent.
The banks have to bring down the interest spread — calculated based on Nepal Rastra Bank (NRB)’s prescribed formula — below five per cent by the end of the current fiscal year, that is, mid-July 2014. NRB had announced the provision in the monetary policy for the current fiscal year and introduced it in a circular issued in October.
The second quarter financials had also revealed that some one-fourth of the commercial banks were unable to bring the difference between lending and deposit rate to the prescribed limit.
Citizens Bank International reported a spread of 6.03 per cent, while the published rate of Sanima Bank and Global IME Bank stood at 5.18 per cent and 5.77 per cent, respectively, till mid-April.
Bankers had officially opposed the regulator’s decree. Nepal Bankers’ Association had written to the central bank requesting it to revisit its decision or amend the formula of the spread calculation in November, 2013. Even the World Bank and International Monetary Fund have specifically asked NRB to backtrack from the interest spread cap, stating that the directed regime will constrict the sector and be detrimental to the whole lending landscape. However, the central bank has yet to sway from its stance.
Since the difference between expenses made to pay interests for deposits and the income earned from charging interest from borrowers is the major source of income for banks, they are not in favour of the central bank clamping down on the spread.
Nabil Bank, which earned the highest profit at Rs 1.05 billion in the second quarter, had the highest spread at eight per cent.
“The central bank has imposed this regulation to ensure that both depositors and borrowers get fair interest for their savings and loans,” said Bhaskar Mani Gnawali, spokesperson for NRB. “However, if the rule poses practical problems, NRB will try to accommodate the concerns of the banks as well,” he added.
The interest cap and ongoing credit-demand crunch was estimated to hit the profit level of banks. Moreover, the outlook of the banks was not optimistic in the absence of proper alternative investment opportunities, with the rates of treasury bills and interbank going below one per cent since a long time.
However, the published financials of three banks have reported handsome profit.
Following its merger with Commerz and Trust Bank last month, Global IME Bank recorded a profit of Rs 728 million — double the amount earned in the corresponding quarter last fiscal year.
Likewise, Citizens Bank International also recorded a jump of 33 per cent in its profit at Rs 304 million. The profit of Sanima Bank also surged by 50 per cent in comparison to the quarter ending in mid-April, 2013 as the bank gained Rs 320 million as net profit in the third quarter.
source: the himalayan times,24 april 2014
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Maintaining interest spread at five per cent still seems to be a struggle for banks, with less than three months remaining for the regulatory cap to come into effect.
The interest spread of the banks till mid-March remained at 6.73 per cent, while the third quarter statistics of a few banks remain well above five per cent. So far, only three banks have published third quarter reports, which reveal all three of them to have a spread of above five per cent.
The banks have to bring down the interest spread — calculated based on Nepal Rastra Bank (NRB)’s prescribed formula — below five per cent by the end of the current fiscal year, that is, mid-July 2014. NRB had announced the provision in the monetary policy for the current fiscal year and introduced it in a circular issued in October.
The second quarter financials had also revealed that some one-fourth of the commercial banks were unable to bring the difference between lending and deposit rate to the prescribed limit.
Citizens Bank International reported a spread of 6.03 per cent, while the published rate of Sanima Bank and Global IME Bank stood at 5.18 per cent and 5.77 per cent, respectively, till mid-April.
Bankers had officially opposed the regulator’s decree. Nepal Bankers’ Association had written to the central bank requesting it to revisit its decision or amend the formula of the spread calculation in November, 2013. Even the World Bank and International Monetary Fund have specifically asked NRB to backtrack from the interest spread cap, stating that the directed regime will constrict the sector and be detrimental to the whole lending landscape. However, the central bank has yet to sway from its stance.
Since the difference between expenses made to pay interests for deposits and the income earned from charging interest from borrowers is the major source of income for banks, they are not in favour of the central bank clamping down on the spread.
Nabil Bank, which earned the highest profit at Rs 1.05 billion in the second quarter, had the highest spread at eight per cent.
“The central bank has imposed this regulation to ensure that both depositors and borrowers get fair interest for their savings and loans,” said Bhaskar Mani Gnawali, spokesperson for NRB. “However, if the rule poses practical problems, NRB will try to accommodate the concerns of the banks as well,” he added.
The interest cap and ongoing credit-demand crunch was estimated to hit the profit level of banks. Moreover, the outlook of the banks was not optimistic in the absence of proper alternative investment opportunities, with the rates of treasury bills and interbank going below one per cent since a long time.
However, the published financials of three banks have reported handsome profit.
Following its merger with Commerz and Trust Bank last month, Global IME Bank recorded a profit of Rs 728 million — double the amount earned in the corresponding quarter last fiscal year.
Likewise, Citizens Bank International also recorded a jump of 33 per cent in its profit at Rs 304 million. The profit of Sanima Bank also surged by 50 per cent in comparison to the quarter ending in mid-April, 2013 as the bank gained Rs 320 million as net profit in the third quarter.
source: the himalayan times,24 april 2014
LINK
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