Central bank makes base rate mandatory for national-level development banks, finance companies

The central bank has directed national level development banks and finance companies to publish base rate from the second quarter of the current fiscal year.

The mandatory base rate for the commercial banks, it had introduced eleven months ago, has also been made mandatory for the national level development banks and finance companies, but not for the one-district and three-district development banks.

Issuing a directive today, the central bank has asked the class B and C financial institutions to compulsorily publish the base rate from mid-January 2014.

The Monetary Policy for the current fiscal year 2013-14 has announced to make the development banks and finance companies publish their base rate.

The base rate will help bring transparency in lending and borrowing rates benefiting borrowers, which will encourage the private sector borrow more to invest. The borrowers can chose the financial institutions that offer cheap interest rates.

It will also make the financial institutions more competitive as they will have to increase their capital base. The financial institutions with higher base rates would not be competitive enough with higher interest rates.

READ ALSO: http://businessjournalist.blogspot.com/2013/02/everest-bank-could-be-cheapest-century.html

Agricultural Development Bank to give dividend for the first time

Agricultural Development Bank Ltd (ADBL) is distributing dividends to shareholders for the first time in the last three years since its public offering.

The bank has announced distribution of 5.6 per cent cash dividend to ordinary shareholders. Likewise, it has also decided to distribute six per cent cash dividend to its preference stocks, subject to the approval from the central bank. Though the bank’s financial health has improved in the last half decade, its non-performing loan (NPL) is higher than six per cent though its Capital Adequacy Ratio (CAR) is at 18 per cent — highest among commercial banks. Moreover, ADBL’s second quarter financial report shows its cost of fund to be at 5.5 per cent, and its base rate is fixed at 12.35 per cent, the highest among the commercial banks.
Likewise, by the end of the second quarter this fiscal year, the bank had earned Rs 546 million. In the review period, it floated loans worth Rs 43.1 billion and collected deposits worth Rs 44.97 billion, and its net interest payment stood Rs 1.97 billion.
ADBL had earned Rs 1.86 billion as net profit in fiscal year 2011-12, making it the biggest profit earning bank in the last fiscal year. It is also the largest domestic bank in terms of paid up capital with a capital of Rs 9.47 billion. It is also the second largest company at the stock exchange with a market capitalisation exceeding Rs 6.4 billion.

The bank, that had issued shares to the public in April 2010, had not been able to distribute any dividend to shareholders despite earning profits due to its retained losses.

However, ADBL’s shares today were traded at Rs 211 per unit. There are 30.4 million units of ADBL shares listed at Nepse.

The majority stake of the bank — higher than 51 per cent — is owned by the government which is worth Rs 1.6 billion, while more than 228,000 public shareholders have a stake worth Rs 1.41 billion. The bank, that was established 46 years ago to promote agro lending, was upgraded to a commercial bank in 2006.

Standard Chartered Bank cheapest, Agriculture Development Bank most expensive according to base rate of commercial banks

The commercial banks have published the base rate for the first time, after the central bank had asked them to calculate the base rate — as reference rate — for lending on the basis of five indicators; cost of fund, Cash Reserve Ratio, Statutory Liquidity Ratio, operational cost, and Return on Assets, to make the interest rate regime transparent for borrowers.

The base rate is expected to ensure the stability of the monetary market in the current volatile situation as interest rates are fluctuating and could hit the sustainability and long-term stability of the financial system, according to the central bank.

Though Nepal Ratra Bank had asked the banks to implement the base rate before Tihar, bankers wanted some more time for calculation and study on its sustainability and started from mid-January. 

Banks — Base rate
Standard Chartered Bank Nepal — 6.80 per cent
Rastriya Banijya Bank — 6.81 per cent
Everest Bank — 7.04 per cent

Nabil Bank — 7.26 per cent
Nepal Investment Bank — 7.8 per cent
Himalayan Bank — 8.23 per cent

Bank of Kathmandu — 8.29 per cent

Nepal SBI Bank — 8.76 per cent

Citizens Bank International — 8.92 per cent
Nepal Bank — 9.19

NB Bank — 9.26 per cent

NMB Bank — 9.32 per cent

Sunrise Bank — 9.5 per cent

Global IME Bank — 9.58 per cent
NIC Bank — 9.58 per cent
Laxmi Bank — 9.65 per cent
Mega Bank — 8.75 per cent

Bank of Asia Nepal — 9.79 per cent

NCC Bank — 9.81 per cent
Kumari Bank — 9.92 per cent
Lumbini Bank — 9.94 per cent
Commerz and Trust Bank — 10.14 per cent
Prime Commercial Bank — 10.19 per cent
Kist Bank — 10.26 per cent
Janata Bank Nepal — 10.29 per cent

Siddhartha Bank — 10.30 per cent

Machhapuchchhre Bank — 10.34 per cent

Sanima Bank — 10.36 per cent

Grand Bank — 10.53 per cent
Civil Bank — 10.91 per cent
Century Commercial Bank — 11.07 per cent

Agriculture Development Bank — 12.35 per cent

Everest Bank could be cheapest, Century Commercial Bank most expensive among 20 commercial banks

Everest Bank could be the cheapest bank to get loans from, whereas Century Commercial Bank will be the most expensive, according to the base rate of some 20 banks published till today.

Everest Bank's base rate stood at 7.04 per cent, followed by Nabil Bank's 7.26 per cent, whereas Century Commercial Bank's base rate stood at 11.07 per cent, on the basis of base rate published by some 20 banks, out of the 32 commercial banks.

Of the 20, two banks have base rate lower than eight per cent, whereas four banks have in between eight per cent to nine per cent, seven banks between nine per cent to 10 per cent, and seven above 10 per cent.

"The base rate came into effect from mid-January, and within the next week, the remaining 12 banks will also publish their base rates," according to the central bank.

"There could be some other banks with a base rate lower than that of Everest Bank," according to a banker, who opined that the base rate alone may not be enough for a bank to provide cheap loans. "But the base rate gives an idea on the minimum interest rate that banks could charge on lending," he said, adding that a borrower's credit worthiness is equally important for a bank.

Banks cannot extend loans to borrowers below the base rate now as it is expected to make credit pricing more transparent. Nepal Rastra Bank (NRB) has now made it mandatory for all commercial banks to fix lending rates based on base rate that will set the floor for credit rates and give borrowers a basic idea on how cheap they can get credit for.

"However, banks can add a minimum premium upto 0.75 per cent on the base rate depending on the quality of collateral, and risk of the loan and borrower," according to a top official at NRB.

"If a borrower has a safe collateral like government bonds and also for priority sectors identified by the government, banks may not add any premium," he said, adding that the central bank wants the stability of the base rate regime, and won't interfere in the lending rate at present.

Technically, the banks will now publish the base rate regularly.

NRB had asked commercial banks to calculate the base rate — as reference rate — for lending on the basis of five indicators; cost of fund, Cash Reserve Ratio, Statutory Liquidity Ratio, operational cost, and Return on Assets, to make the interest rate regime transparent for borrowers.

The base rate will ensure the stability of the monetary market in the current volatile situation as interest rates are fluctuating and could hit the sustainability and long-term stability of the financial system, according to the central bank.

Though NRB had asked the banks to implement the base rate before Tihar, bankers wanted some more time for calculation and study on its sustainability.

Banks — Base rate

Everest Bank — 7.04 per cent

Nabil Bank — 7.26 per cent

Himalayan Bank — 8.23 per cent

Bank of Kathmandu — 8.29 per cent

Nepal SBI Bank — 8.76 per cent

Citizens Bank International — 8.92 per cent

NB Bank — 9.26 per cent

NMB Bank — 9.32 per cent

Sunrise Bank — 9.5 per cent

Global IME Bank — 9.58 per cent

Mega Bank — 9.75 per cent

Bank of Asian Nepal — 9.79 per cent

NCC Bank — 9.81 per cent

Commerz and Trust Bank — 10.14 per cent

Janata Bank — 10.29 per cent

Siddhartha Bank — 10.30 per cent

Machhapuchhchhre Bank — 10.34 per cent

Sanima Bank — 10.36 per cent

Grand Bank — 10.53 per cent

Centuray Commercial Bank — 11.07 per cent