The interest rate of bank loans is set to be increased again. It is estimated that the interest rate of bank loans will go as high as 18 percent from October 18 (Kartik 1). However, the interest rates in saving accounts will not increase.
According to Santosh Koirala, an executive member of the Nepal Bankers Association, the base rate of bank loan interest will increase at least by 0.5% and after adding a premium to it, the interest rate will increase to 17-18 percent.
Owing to the liquidity crisis in Nepal and crunch in foreign exchange reserves, the banks have been increasing interest rates in their savings account which consequently increases the loan interest rates.
As the deposit interest rate increases, the loan interest rate also increases along with the base rate, informs Banker Koirala.
Banks published 12.133 percent interest rate on personal FD (Fixed Deposit) accounts for mid-September (Ashoj) which was earlier at 11.03% in mid-August. Banks offer 13.13 percent to 15.133 percent interest rate for remittance savings, increasing it from 11.33%.
Similarly, the minimum interest rate on ordinary savings was 6.03% – 8.03% in mid-August which was hiked to 7.133% – 9.133% in mid-September.
Nepal Rastra Bank has a policy that allows banks to change the interest rate of savings every month while loan interest rates can be changed only once every quarter.
The hike in interest rates of bank loans comes amid a time when the people in different cities of Nepal are protesting against high-interest rates charged by the banks.
Recently businesspeople in Birendranagar, Surkhet closed the entire market on Thursday and staged a rally against high-interest rates.
As the interest rate increases, the base rate of banks also increases, which means that new and old borrowers will have to pay increased loan amounts from mid-October.
Financial experts speculate that middle-class borrowers with fixed incomes may not be able to pay installments and there might even be a situation where mortgages will have to be auctioned to recover the loans due to the increase in interest rates and rising inflation.
Koirala said that the loan repayment income ratio is kept at 50%, but the ever-increasing interest rate of loans has brought a situation where borrowers are paying 70-80% of their income for loan installments.
