'Instability hurting confidence of banks'

KATHMANDU, March 31: Consortium chief of Nepal´s banks has warned that the country´s banking system is facing a crisis of confidence as recent rise of deposit rates have failed to attract additional deposits.



President of Nepal Bankers´ Association (NBA) Sashin Joshi, speaking at an interaction program organized by Press Chautari Nepal on Wednesday, rejected central bank´s claim that lower deposit rate offered by the financial institutions were the reasons for slow growth in deposit mobilization. [break]



In the past years, financial institutions enjoyed a high growth in deposit rates despite the fact that interest rate then was much lower than what the banks are offering at present, he said. “There is an urgent need to study why the growth in deposit mobilization is nominal at a time when banks are offering three-time higher rates than in the past,” he said.



Joshi blamed prolonged political instability and worsening law and order situation for weakening depositors´ confidence in domestic economic system. He also claimed that despite the rise in lending rates, the actual spread rate on interest rates has declined in recent months and warned that there will be a decline in profitability of banking system during the current fiscal year.



President of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Kush Kumar Joshi said that Nepali industries were surviving because of low lending rates in Nepal despite being high cost economy. "Now a serious threat to domestic industries has appeared as the lending rates are fast rising," he said.



Joshi also urged the banks to share some parts of the profits that they have been enjoying for last several years and warned that banks´ handsome profits will not be sustainable if they continued to show indifference towards the problems being faced by the industries.



Speaking at the same program, newly appointed governor of Nepal Rastra Bank Dr Yuva Raj Khatiwoda said the challenge with the central bank is that it has chosen a careful policy balance between the high inflation and low growth rates. "If we take steps to curb inflation, growth will be hurt and if we try to push growth through loose monetary policy, inflation will balloon," he explained.



Governor Khatiwoda further said that the central bank would take a policy of ensuring enough liquidity for productive sector and curbing investments going into the unproductive sector. He expressed the confidence that the recent problems seen in the economy is curable but said it might take some time.

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