Thursday, December 23, 2010

Home, auto loan interest rates to go up

Asset-liability mismatch, repricing risk and increasing interest rates on deposits are forcing the banks to readjust the lending rates making auto loan and home loan costlier.
The banks and financial institutions (BFIs) are increasing interest rates on consumer loans -- especially on housing and auto loans - as they have been operating on very thin margin, lately. "Some of the BFIs have already increased the rates," said Anil Shah, chief exective officer (CEO) of Mega Bank. "But the rates could be stabilised after the second quarter ends by January 15."
Last year, when the BFIs faced liquidity crunch, they have increased the deposit rates. Since the banks are offering high rates on deposits, they have no option than to increase the lending rates. As they have high deposit rates, they will naturally find it difficult to fund loan.
On top of that there is an asset-liability mismatch in the banking sector. The BFIs take maximum deposits for one to two year-term and has to lend for a longer period of five to ten years. According to the central banks directives, they also have to maintain deposit-lending ratio pushing the cost of loan higher.
"The interest rates on deposit is also increasing as there is a high risk of repricing making the cost of the fund high," according to the CEO of Commerz and Trust Bank, Anal P Bhattarai, who thinks the banks are operating on a very thin margin and 'readjustment of the rates is evident.'
Currently housing loans are available at an average of 13 per cent interest rates and auto loans at available at an average 14 per cent per cent interest rates. They have to be match asset-liability by readjusting the rates to around 18 per cent.
Sashin Joshi, president of Nepal Bankers Association (NBA) thinks that there is no 'strong' evidence supporting the perception that the rates will go up. "Many banks are even today offering housing loans at 13 per cent to 14 per cent and auto loans at 13.5 per cent to 14.5 per cent," he said.
The central bank data reveals the commercial banks deposit stands at Rs 600 billion and lending stands at nearly around Rs 500 billion.

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