Due to Higher Spread Rates, NIC Asia Bank is Most Affected by the First Quarter Monetary Policy; What is the Status of Other BFI's?

The fiscal year 2079/80 first quarterly review of monetary policy has been released by Nepal Rastra Bank (NRB). Through this monetary policy, the central bank has implemented a number of changes, particularly in the banking sector where the spread rate of banks and financial institutions has fallen.

The Central Bank decreased the spread rate by 0.4 percentage points in the first quarter while assessing the monetary policy for the fiscal year 2079/2080. 

The spread rate is the difference between the interest rates on deposits and loans. Banks have to consider the weighted average of the interest rates on deposits and loans while calculating the spread rate.

Interest rate spread is used not only to cover the cost of operating expenses and required reserves but also reflects the prevalence of market power and compensates for the quality of loans.

The companies having higher spread rates can lower their spread rates by reducing the loan interest rate and the premium rate that banks and other financial institutions charge when establishing the loan interest rate. 

Commercial Banks

NIC Asia Bank has the highest spread rate of 4.39%, whereas Nepal Bank Limited has the lowest spread rate of 3.66%.

Similarly, 11 commercial banks—NBL, CCBL, NMB, CZBIL, NCCB, SCB, NIB, ADBL, SANIMA, SBL, and PRVU—maintained spread rates below 4%.

Other banks such as SBI, NABIL, MEGA, LBL, SRBL, KBL, HBL, GBIME, EBL, MBL, RBB, BOKL, PCBL, CBL, and NICA, have spread rates that are more than 4%. These banks are now impacted by the higher spread rates, in accordance with the first monetary policy, and are required to keep the spread rates below 4% starting in the forthcoming quarters.

Development Banks

As per the first quarterly review of monetary policy, the interest rate differential between development banks has also decreased from 5 percent to 4.6 percent.

In terms of Development Banks, Muktinath Bikas Bank (MNBBL) has the highest spread rate of 4.99% whereas Green Development Bank Limited (GRDBL) has the lower spread rate of 4.04%.

Among the 15 Development banks in Nepal, 9 Development Banks have maintained the interest spread rates below 4.6%. 

Finance Companies

Similar to the Development banks, the interest rate differential between finance companies has also decreased from 5 percent to 4.6 percent.

Here, 12 financial institutions have been affected by the monetary policy review and are required to lower their spread rates from upcoming quarters.

On the other hand, RLFL, JFL, and BFC has spread rates below 4.6%.