December 9: Nepal Rastra Bank’s policy to lower the spread rate of banks has caused the profit of a dozen banks to shrink.

The central bank had decided to reduce the spread rate of commercial banks from 4.4 percent to 4 percent through the first quarterly review of the monetary policy of the current fiscal year. Likewise, the NRB had also recued the spread rate of development banks and finance companies from  5 percent to 4.6 percent.

According to the data published by the commercial banks, a total of 14 commercial banks will witness a decline in profit because their spread rate was more than 4 percent as of mid-October this year.

Among the 26 commercial banks of Nepal, NIC Asia Bank had the highest spread rate of 4.39 percent while Nepal Bank Limited had the lowest spread rate of 33.66 percent.

Spread rate is the difference between the interest rate a bank pays to depositors and the interest rate it receives from loans to consumers. As the main source of income of banks is interest, their income is likely to shrink if the spread rate is reduced. Therefore, the banks have to look for alternative source of income if they are to maintain the same level of profit.

“The average spread rate of banks is around 4 percent. The monetary policy will only affect a handful of banks,” said Anil Kumar Upadhyay, chairman of Nepal Bankers Association.

He said that the commercial banks will take a decision to reduce the interest on deposits only after the central bank implements the revised provision of the monetary policy.

Former banker Analraj Bhattarai says that the banks facing liquidity crisis will have immediate impact due to the central bank’s decision but there won’t be any long-term implications.

“The banks having high spread rate will feel immediate impact but they can make up for the loss in the long term through other source of income,” said Bhattarai.