KATHMANDU, Aug 8: On Monday, Himalayan Bank launched home loan scheme at fixed interest rate of 10.90 percent for at least three initial years, as against the rate of 12.75-16 percent that the bank was slapping in the past.
On Tuesday, Nepal Investment Bank went a step further and introduced similar scheme at 10.50 percent interest - at least 30 percent down from the previous rates of 15-16 percent.
These instances, many bankers say, are the prelude to falling home loan rates - at least for a short period of time - as these banks are among the trendsetters in the market.
"Home loans rates are expected to come down in the days to come as the cost of fund of most of the banks is going down," a high-ranking official of Nepal Investment Bank told Republica on condition of anonymity.
At the end of last fiscal year´s third quarter, the average cost of fund of commercial banks stood at a high of 8.31 percent, with Civil Bank reporting the highest of 10.91 percent in the industry. This was because many banks were paying high rates on fixed deposits.
"Now since most of those deposits have matured, the cost of fund of many banks has come down, giving them the leeway to bring down the rates even for the time being," the official of Nepal Investment Bank said.
This development has also caused Everest Bank, one of the top five private-sector led commercial banks in terms of assets, to mull over slashing home loan rates.
The bank, which claims to have mobilized Rs 1.5 billion from the housing market last fiscal year by launching one- and two-year fixed interest rate schemes, is currently mulling over reducing home loan rates by at least one percentage point from existing 13.5-15.5 percent.
Some time ago, Citizens Bank and Mega Bank had also brought down home loan rates by at least two and one percentage points, respectively.
The latest competition in reducing interest rates is also the upshot of declining exposure to the real estate market, according to bankers.
Many banks have now brought down their exposure to the real estate sector to below 20 percent of their credit portfolio from previous high of as much as 35 percent - meaning credit extended to the sector are being recovered.
"This has injected liquidity in banks and many may have opted to take the approach of funneling that money into the housing sector - mainly due to lack of other secure avenues that can absorb credit - rather than in treasury bills that give yield of less than a percent," a high-ranking official of Nabil Bank said. And since home loans are considered secure as they are backed by collateral, many banks are jumping into the bandwagon, the official of Nepal Investment Bank said.
However, PK Mohapatra, CEO of Everest Bank, said the latest rate reductions made by few big banks may be difficult for newer banks to imitate, as cost of fund for those institutions are still at higher end.
Anil Gyawali, CEO of Nabil Bank, the largest private-sector led bank, on the other hand, said: "We have not considered on launching a new product aimed at triggering a price war. This is not our strategy."