Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Banks are free to set their interest rates in accordance with the state of the market, according to Governor of Nepal Rastra Bank (NRB) Maha Prasad Adhikari. He made his remark as the government and the private sector were exerting pressure on the central bank to reduce interest rates.
Tuesday’s press conference from NRB Governor Adhikari made it clear that the central bank would not get involved in setting the interest rates for banks. Adhikari stated, “Raising or lowering interest rates is completely out of my control.”.
Banks set interest rates under a free market system based on their liquidity position. Adhikari stated that “the availability of liquidity at the market and risk of loans are the main factors that determine the interest rates,” adding that the interest rates may soon decline due to an increase in systemic liquidity.
In order to control interest rates, the central bank employs policy measures like spread rates. Adhikari claimed that in order to protect the general public from high interest rates, the central bank has decreased the spread rate. Additionally, banks were only allowed to charge a premium of up to 2% on loans made to small businesses. “.
While the banks are in good financial health, the NRB reports that there has been a noticeable improvement in the external sector indicators. Banks have a capital adequacy ratio of at least 13%, a net liquidity ratio of at least 23%, and a bad debt ratio of at least 2.16%.
Adhikari dismissed the complaint from the private sector that excessive interest rates are to blame for the slowdown in the nation’s economic activity. He continued, “In the past, the economy had also felt the heat of the double-digit interest rate on loans.”
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