Increasing Trend of Fixed Deposits in the Banks of Nepal
Filed under: 000 General Ganthan
KATHTMANDU, JUL 24 – Given commercial banks offering high interest rates on fixed deposits amid liquidity crunch, deposits are shifting towards fixed accounts from savings.
Bankers say such a trend started to appear six months ago. People might have gotten attracted towards fixed deposits due to lack of good investment opportunities in the country, they said.
Currently, banks are offering around 10-12 percent interest on fixed deposits. Commercial banks including NIC, Nabil, Bank of Kathmandu and Kist have experienced such a trend. NIC CEO Sashin Joshi said there has been a surge in fixed deposit growth for the last six to eight months, while the growth in savings deposit has remained static. “The share of fixed deposits in our total deposits escalated to over 35 percent last fiscal year from 32-33 percent in the previous year,” said Joshi. NIC has total deposits of Rs 18 billion as of the last fiscal year.
Joshi said investors might have opted for fixed deposits due to the fluid investment environment in the country. Nabil Bank also has a similar experience. “The share of fixed deposits in our bank is increasing at the cost of savings deposits,” said Amrit Charan Shrestha, general manger of the bank. Nabil has been experiencing such a trend for the last six to seven months.
According to Shrestha, the share of fixed deposit in Nabil’s total deposits surged to 33 percent last year compared to 25 percent in the previous year. Nabil has total local currency deposits of Rs 40 billion at the end of the last fiscal year.
The case of Bank of Kathmandu is not so different. “We experienced a rise in fixed deposits and decrease in savings deposits last fiscal year,” said CEO Ajay Shrestha. The bank’s fixed deposits rose by 15-20 percent last fiscal year to Rs 6.95 billion, pushing up the share of fixed deposits in the bank’s total deposits to 35 percent from earlier 32 percent. The bank’s saving deposits shrank to 32 percent from 35 percent of the total deposits in the last fiscal year.
BoK has total deposits of Rs 21 billion as of the last fiscal year, including both local and foreign exchange deposits.
However, Kist Bank’s story is different. The bank saw a decline of the shares of both fixed and savings deposits in its total deposits as of the last fiscal year compared to previous year, while the share of call deposits surged.
According to KIST CEO Kamal Gyawali, the share of saving deposits in the bank’s total deposits went down to 50 percent last fiscal year from more than 60 percent in the previous year and that of fixed deposits decreased to 25 percent from 27 percent over the period. “But the share of deposits surged to 12 percent from 5-7 percent,” said Gyawali, adding that the rise in interest rates on call deposits contributed to the rise.
Banks usually do not prefer a heavy surge in fixed deposits during unfavourable investment environment, as they have to pay high interests compromising their income. But they are not hesitating in accepting high-cost funds due to liquidity crunch.
However, with deposits getting diverted to older banks from B and C class FIs, some banks are discouraging fixed deposits. Nabil has slashed its interest rates on fixed deposits to 10.5 percent from 12 percent. “Increasing fixed deposits is not good for banks. They cannot invest by taking deposits at high cost,” said Shrestha of Nabil.