Commercial Banks Update Interest Rates; Will Liquidty Scenario in Second Wave be Worse than During the First?

Commercial banks have updated the interest rates for the month of Jestha.

Bank of Kathmandu Limited (BOKL), for example, now gives interest payments in the range of 2.5% to 4% on savings. This shows that the interest rate has fallen compared to the month of Baisakh when the bank gave in the range of 3.1% to 4.6%. The interest rate on fixed deposits has gone down as well. Individuals previously got in the range of 7% to 7.6% on fixed deposits while institutions got in the range of 5.5% to 7.5%. Now, the rates have fallen to 6.5% - 7% for individuals and 5% - 7% for institutions.

Interest payment commitment has fallen for Prime Commercial Bank too. The previous rate range on savings was 3.51% - 4.5%. Now, the range is 2.76% - 4.5%. The highest interest payment that individuals will get on fixed deposits is 7.76%, compared to last month's highest rate of 8.5%. While institutions got in the range of 7.5% - 8.51%, they will now only get 7.5% - 7.76%.

In contrast, Mega Bank has gone to increase the interest rates instead. The bank previously made interest payments in the range of 1.75% to 3.5% for savings. For the month of Jestha, the bank has hiked the rate to 2.25% - 6.5%. While individuals and institutions got a flat 6.75% interest payment on all fixed deposits, they will now get 7.25%.

Because of the disparity in the updates, it is quite challenging to ascertain the liquidity situation of the economy and the health of the banking sector. For instance, Nabil bank has not made any changes to its interest rate profile for the month of Jestha. The bank will still provide interest payments in the range of 1.51% - 3.51% for savings schemes, 5.01% - 6.51% for individual FDs, and 4% - 6.5% for institutional FDs. Nonetheless, the base rate as of Chaitra, i.e. 6.18% is higher than the base rate as of Falgun, i.e. 5.49%.

Nepal SBI Bank Limited will now give 2.55% interest payment on most of its deposit schemes and 3.16% on the bank's special deposit schemes while it previously gave in the range of 3% to 3.16%. The bank also has a higher base rate as of Chaitra compared to that of Falgun.

However, Prabhu Bank Limited's base rate as of Chaitra, i.e. 7.06% is actually lower than the rate maintained as of Poush, i.e. 7.24%. The bank now gives a flat 7% annual interest payment on all FDs. Previously, individuals got in the range of 5.5% - 7% on FDs and institutions got in the range of 5% - 7%.

Wrapping Up

In this article, sampling a few commercial banks from all those that updated their interest rates shows that there is a disparity in the interest rates update. As such, one can also ascertain that banks, like all others who watch the economy, may have varied opinions on the future of the economy and liquidity scenario. 

The excess liquidity that the economy had to deal with in the past year as a result of the lockdown during the first wave. Fast forward to today, the country is on the second series of lockdown and prohibitory orders because of the second wave of the pandemic. The government has extended the lockdown since the second wave seems deadlier and bigger than the first. As such, the halt in economic activities does have the potential to ensue yet another scenario of piling liquidity on a whole another level.