English | Dzongkha Monday, May 29, 2017

Revised Minimum Lending Rate drops by almost a percent

Passang, Thimphu
Mar 4, 2017

People are expected to get loans from the financial institutions at lower interest rates. The revised Minimum Lending Rate (MLR) saw a drop by nearly one percent from 6.75 percent last year.

MLR is a single benchmark or minimum reference rate for lending of money across the financial institutions.

The central bank revised single MLR for the first time after it was introduced in September last year.

The Royal Monetary Authority (RMA) calculates the single Minimum Lending Rate by averaging the Minimum Lending Rates of individual banks.

The MLR uses three parameters that are common in all the banks. They are Operating Cost, Marginal Cost and Cash Reserve Requirement.

Operating cost is expenses incurred in day-to-day operation of the business. Marginal Cost of Funds is the money spent to mobilize additional unit of deposits and borrowings. Cash Reserve Ratio or CRR is the amount or certain proportion of the cash deposits that the central banks are required to hold.

RMA’s officiating Director of the Research Department, Gopal Giri said based on the data submitted by the banks, the main contributing factor for the reduction in MLR is the operation costs of the banks followed by the marginal costs and the CRR costs.

“Overall these three parameters has contributed almost one percent to the fall.”

Financial experts say the drop in MLR is an indication that financial institutions in the country and performing well.

Records maintained with the Central Bank show that deposits with the five banks increased by Nu 33 B within June to December last year.

The Central Bank, in a press release, issued the revised rate on February 13. Based on it respective banks will now have to come up with revised lending rates for the next six months.

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