BANKS RUSH INTO CONSUMER LENDING
With a low risk factor,
banks as well as state- owned banks are jumping on the consumer financing
bandwagon and tying to outdo each other with competitive interests rates.
Almost all the leading banks, including the Nepal Bank Ltd. (NBL) and
Banijya Bank (RBB) have joined the rave by drastically reducing interest rates.
While NBL and RBB offers housing loans at 7.5 per cent interest rate, some
private commercial banks still charge 8.5 per cent to over 10 percent interest
rates on consumer loans.
Currently, the size of the consumer lending market is estimated at Rs 10
billion, banking officials estimate. However, the market has not been fully
Parshuram Chhetri, chief lending officer at NBL, commented that big investors
are losing interests on loans. However, demand for small loans has gone up which
is also less risky compared to huge loans. Chhetri said that business confidence
among big clients has been low.
“The bank’s high liquidity and low interest rates in treasury bills issued by
Nepal Rastra Bank (NRB) has also compelled the bank to go for consumer financing
at low interests,” opined Chhetri. There is a high risk in corporate loans, he
In consumer loan market, 60 to 64 per cent is occupied by auto, 35 per cent by
housing and less than five per cent by the educational sector, said Chhetri.
Effective ‘reform’ in RBB helped the bank to move into ‘consumer lending ‘ and
compete with private banks, said Bruce Henderson, CEO of RBB. “The bank has
reformed areas like lending and recovery, rightsizing staff, quality manpower,
reducing non-performing assets (NPA) and computerization,” Henderson said.
“Consumers get attracted towards small loans for housing, automobiles and
education, thanks to low interest rates,” said Henderson. “A recent example is
that over 750 people have already registered their names for housing,
automobiles and educational loans at the exhibition recently held at Birendra
International Convention Centre (BICC) at the RBB stall. “The bank is giving
housing loans at the rate of 7.5 per cent interest rate and auto loans at seven
per cent interest rates.
Keshav Poudel, manager corporate credit of Everest Bank Ltd. opined that
consumer financing constitute 20 per cent of total loans, EBL is the first bank
to introduce consumer loans in 2001,” claimed Poudel. Viability for investing
in big projects seems dim. But small loans like housing and auto are getting
safe and popular, said Poudel.
Henderson of RBB said that the bank is opening the window of opportunities for
many consumers. It encourages individuals to do business and other purposes and
give loans promptly, he said.
Chetan Thapa, relationship manager of Bank of Kathmandu (BOK) commented that the
growth rate in consumer loans is going up. He said that there is a high risk in
industrial loans and other big loans but it is safer in the consumer loans
sector, coupled with better returns. Thapa said the growth rate in home loans
has been 210 per cent, while the growth rate in education loans has been 150
percent for his bank. BOK started consumer financing about four years ago. Thapa
Source: The Himalayan Times, March 29, 2005
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