Increased cost of funds pushes up lending rates

Banks and financial institutions (BFIs) have been passing on their increased cost of funds caused by a prolonged liquidity crunch to their borrowers—both the general public and industrialists—in the form of higher lending rates. The interest rate on loans has doubled from 8 percent to 16 percent in the last one year.

Realty developers said they were feeling the heat of increased interest rates being charged by BFIs. “The rate of interest that used to be around 7-8 percent has surged to 16 percent,” said Min Man Shrestha general secretary of the Nepal Land and Housing Developers Association.

The financial reports of commercial banks for the third quarter shows that new banks are paying their depositors a higher rate of interest to mobilize funds. This has raised the cost of funds for new banks.

The cumulative net profit of commercial banks rose 4.65 percent to Rs 10.79 billion at the end of Q3. During the same period in 2009-10, the growth rate of net profits was 6.72 percent.