The Big Question for Banking Industry in Nepal

There have been many media news of Nepal Bankers Association meeting announcement about decision on interest rates. 

After the end of Covid-19 pandemic, each decision  on interest rate is reflected in the margin or mark-up of banks earning. The margin can be observed by the lending rate minus base rate and spread rate as shown in Fig 1 and Fig 2. Banks excess earning gradually increased (as in Fig, red arrow Þ). It is noted that each 1 percentage point is more than Rs. 50 billion annual burdens to public or earning of banks (as total Private Sector Credit is Rs. 5758 billion in mid-March 2023).

The banking market is confined with the deposits of public. The innocent depositors are only the price-takers. Supply of deposit is highly interest inelastic, if all banks change their rate simultaneously in same direction. Deposits cannot immediately go out from the system, if all banks reduce the deposit rate at same point of time. On the other hand, the creditors are also bounded by the agreement, it is very hard for them to change the banks. Thus, any noncompetitive and industry level decisions (cartels) always harm the society. Such activities are neither economic, nor legal and even not ethical decisions in the society. This should not even be the objective of the such elite association of the society. The association should believe on fair competition. The price control activities of association are immoral too. In most countries, this is illegal and controlled by Antitrust Law also charges heavy fines if violated, the law facilitates competition. 

The good part of regulation is that the data, information and activities of banks are transparent. Even rules are violated, our future generation will evaluate and judge our activities, they may tag us as Cartels.  These experiences were in many countries as an example- the Britain's bank Cartels during (1914-late 1960s). This is our choice how we position ourself in the history. This is our moral responsibility too, not to encourage cartels anymore. Best wishes for all.  

The views are my personal.

In the Support of Free and Fair Economics!!!  :)

Data Sources: Table No. 50 Structure of Interest Rates, CMES, NRB

https://www.nrb.org.np/category/current-macroeconomic-situation/?department=red&fy=2079-80