Planning to buy a car or build a house on bank loans? You will need to have really deep pockets. Banks and Financial Institutions are planning to hike interest rates on consumer loans — especially on housing and auto — to adjust asset-liability mismatch‚ mitigate repricing risk and parallel soaring interest rates on deposits. “Some of the BFIs have already increased the interest rates‚” said Mega Bank CEO Anil Shah. “But the rates could be stabilised after the second quarter ends by January 15.” Last year‚ BFIs increased deposit rates after they faced liquidity crunch. Since the banks are offering higher rates on deposits‚ they are left with no option but to increase the lending rates and again‚ as they have high deposit rates‚ they naturally find it difficult to fund loans. Financial institutions have been mired by asset-liability mismatch‚ as they take maximum deposits for one to two years but lend for a longer period of five to ten years. According to Nepal Rastra Bank directives‚ they also have to maintain deposit-lending ratio that pushes the cost of loan up. “The interest rate on deposit is also increasing in light of high risk in repricing‚” said Commerz and Trust Bank CEO Anal P Bhattarai. According to him‚ the banks are operating on a very thin margin. “Therefore‚ rate readjustment is but evident‚” said Bhattarai. Currently housing loans are pegged at around 13 per cent interest rates and auto loans at around 14 per cent‚ which according to BFIs‚ must be revised to adjust asset-liability difference. Sashin Joshi‚ President of Nepal Bankers’ Association‚ however‚ said there was no ‘strong evidence’ to support the perception that the rates will go up. “Several banks still are offering housing loans at 13 per cent to 14 per cent and auto loans at 13.5 per cent to 14.5 per cent‚” said Joshi. According to central bank data‚ commercial banks’ deposit currently stands at Rs 600 billion and lending at nearly around Rs 500 billion.
source: The Himalayan Times