The Nepal Rastra Bank (NRB) has
made several adjustments in its third-quarter monetary policy review for the
fiscal year 2080/81, aiming to ease certain financial regulations and support
economic activities below is the detail story of monetary policy change:
1. Risk Weight Reduction for
Hire Purchase Loans: The risk weight for hire purchase loans, previously
set at 125%, which has been lowered to 100% currently. This change is expected
to make vehicle loans more accessible and potentially reduce the cost of
borrowing for consumers & will have slight relief in capital reserves for
banks.
2. Eased Conditions for Real
Estate Loans: The Debt Service to Gross Income Ratio for real estate
purchases has been increased from 50% to 70%, provided tax clearance
certificates are submitted. This adjustment is designed to facilitate easier
access to real estate financing.
3. Sale of Primary Capital
Investments: Banks and financial institutions are now allowed to sell up to
20% of their primary capital investments in a fiscal year, given these
investments have been held for at least one year. This provision aims to
enhance liquidity management and investment flexibility for financial
institutions will impact share market positively.
4. On Loan Loss Provisioning:
The provisioning for loans classified as 'good' has been slightly reduced from
1.25% to 1.20%. This reduction could lower the burden on banks' capital
requirements and improve their balance sheets.
5. Review of Silver Import and
Sale Provisions: Existing regulations concerning the import and sale of
silver are set to be reviewed, which could impact the market dynamics for
precious metals in Nepal.
6. Maintenance of Key Interest
Rates: The policy rate remains at 5.5%, with the deposit collection rate at
3% and the bank rate at 7%. Additionally, the mandatory cash reserve ratio and
statutory liquidity ratio have been kept unchanged.
7. Interest Rate Corridor:
The NRB plans to conduct necessary reviews to enhance the standing deposit
facility, which is part of the interest rate corridor mechanism. This measure
is aimed at ensuring the effectiveness of the interest rate corridor in
managing liquidity and monetary conditions.
8. Strengthening Capital Base:
The NRB plans to help banks and financial institutions strengthen their capital
by using new tools or making regulatory changes. This will make the banking
sector more stable and resilient.
Conclusion…
Hence with the adjustment made
through current review of monetary policy, Implications of the Policy Changes
can be summarized for three different sectors:
For Consumers:
Lower risk weights for vehicle loans and eased real estate financing conditions
could boost consumer spending in these sectors.
For Banks and Financial
Institutions: The ability to sell a portion of primary capital
investments and reduced loan loss provisioning may improve liquidity and
profitability. Further it maintains existing interest rates and
liquidity requirements ensures stability in the financial system while
providing room for growth.
For the Economy: These measures collectively aim to stimulate economic activity, support consumer spending, and maintain financial stability amidst both internal and external economic challenges. The NRB’s third-quarter review takes a balanced approach. It eases some regulations while also ensuring financial stability, showing they are responding well to the current economic situation.
