A total of 32 category ‘A’ financial institutions on average paid 8.31 percent in interest on deposits parked by depositors in the first nine months of the current financial year compared with 8.2 percent in the same period last year.[break]
State-controlled Nepal Bank Limited witnessed the sharpest hike of 45.8 percent in the cost of fund to 5.03 percent in the nine-month period through April 12.
“This is because we paid higher cost to lure depositors in the last fiscal year when there was liquidity crunch,” Maheswor Lal Shrestha, coordinator of Nepal Bank, told Republica.
A year ago, when the banking sector faced cash shortfall, many commercial banks raised interest on one-year fixed deposits to average of 12 percent. During that time, many banks started accepting long-term deposits for periods of three to five years. “Although this hike should have been reflected on commercial banks’ balance sheets of last fiscal year, this did not happen as many banks at that time were also holding deposits on which interest rates were low,” said Sashin Joshi, CEO of NIC Bank, which witnessed 7.13 percent hike in cost of fund to 9.17 percent in the nine-month period.
“This factor coupled with withdrawal of deposits with low interest rate or renewal of those deposits at higher rates in the beginning of this fiscal year contributed in pushing up banks’ cost of fund,” Joshi explained.
He, however, is quite optimistic that balance sheets of fourth quarter will show a reduction in the cost as most of the deposits which yielded higher rates have started maturing or are being renewed at new rates which are lower.
Ashoke Rana, CEO of Himalayan Bank, which saw 4.96 percent rise in the cost of fund to 7.2 percent in the nine-month period, echoed Joshi and said: “The figure at my bank will hover at six percent by the end of fourth quarter, as most of the deposits with higher rates have matured.”
It is said 80 percent of the fixed deposits at banks have a life of one year. This means most of depositors either pull the money out of the bank after a year or renew them as per the revised terms and conditions of banks.
“Since deposit rates have gone down significantly in the recent days due to liquidity surplus, we believe the cost of funds of most banks will go down,” Rana said.
Currently, average interest rate of commercial banks on one-year fixed year deposit hovers at eight percent.
Despite this, few new banks like Civil are offering interest of 10.5 percent on one-year fixed deposit. Because of this, the bank reported cost of fund of 10.91 percent in the nine-month period -- the highest among all commercial banks.
“But higher deposit interest rate offers are a compulsion for newer banks as liquidity cannot be managed without resorting to this measure,” Anal Bhattarai, CEO of Commerz and Trust, said, adding the bank is introducing a new deposit product on
Monday, under which individuals will be offered 10.51 percent rate on deposit parked for a period of 151 days.
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