Commercial banks raise home loans rate

KATHMANDU, July 21: More than half a dozen commercial banks have hiked home loan rates by as much as 1.5 percentage points - a move which will disappoint borrowers deeply, citing increase in cost of capital.

Banks like NMB Bank, Global Bank, Nepal Industrial and Commercial (NIC) Bank and KIST Bank have enforced the new rates from the new fiscal year, starting from Sunday this week.

Following the change, NIC Bank´s home loans rate has jumped to as high as 16.49 percent. Similarly, rate of NMB Bank also stands at over 16 percent, while that of KIST Bank has gone up to the range of 14 to 16 percent.

The fresh hike has also jacked up the industry average rate of home loans to just over 16 percent. So far, the industry average rate was over 15 percent.

“We had to raise the rates mainly because the central bank´s directives sought us to close the interest rate gap between different savings schemes to 2 percent or less. This raised our cost of capital,” said Upendra Paudel, chief executive of NMB Bank.

The central bank has asked the banks and financial institutions to bridge the gap in rate between different savings products, mainly as bankers, while luring fresh deposits, offered higher rates to new depositors only, leaving old accounts holders deprived of due interest return.

Banks were offering as high as 10 percent interest return to new depositors, whereas older depositors were offered as low as 3 percent.

“This is not fair. The banks must bridge the gap to 2 percent or less,” NRB had said in its directives.

Though a few banks had instantly complied with the directives, most of the BFIs are just gearing up to implement it.

As a result, sources told Republica that more banks may follow the suit and raise lending rates because they are ´left with no choice´ as they have raised the rate of minimal interest rate to bridge the gap.

“As liquidity problem has not faded away in a large number of banks, they cannot lower the higher rates. And the unwanted raise of lower savings rate has gone up to increase cost of capital,” said the source.

Interestingly, the latest hike in lending rate has come contrary to what Nepal Bankers´ Association (NBA) had announced about a month ago.

With the ease in liquidity in leading banks, NBA had said they have lowered the interest return to corporate clients by as much as a percentage point. “We believe this will eventually lead to drop in lending rates,” NBA president Ashok Rana had told Republica then.

Source:myrepublica.com

1Ropani