KATHMANDU, Jan 31: Nepali commercial banks have reduced the base interest rates by an average of 0.21 percentage points after they failed to increase loan investment amid the ongoing economic slowdown.
According to the financial reports unveiled by the banks, they have lowered the base interest rate to an average of 6.81 percent for the month between mid-January and mid-February. Last month, the base interest rate of the commercial banks was 7.02 percent on an average.
Of the 20 commercial banks, three commercial banks have a base rate below six percent. Standard Chartered Bank has maintained the base rate at the lowest of 5.19 percent, down from 5.38 percent last month.
Likewise, the state-owned Rastriya Banijya Bank, with its base rate of 5.64 percent, has the second lowest base interest rate. Previously, the base interest rate of the bank stood at 5.85 percent.
Everest Bank with a base rate of 5.66 percent stands in the row of low base interest rate. Until last month, the base rate of the bank was 6.15 percent.
Seven commercial banks have maintained their base interest rate below seven percent. Maintaining the figure at 7.75 percent, NIC Asia Bank has the highest base rate.
A bank’s lending rate is determined by adding a certain premium rate to its base rate. Based on the nature of lending and risk factors, banks add a premium between 1.5 percent and 5 percent on top of the base rate when they provide loans to their clients.
It has almost been a year that the Nepali commercial banks have been lowering their interest rates to attract the borrowers. In the past few months, banks have been successively lowering their interest rates. Since May 2024, banks have been maintaining their average base rate in single digits.
Despite a notable decline in the lending rates, banks have been unable to expand their loan portfolio due to the ongoing economic slowdown. The records with Nepal Rastra Bank (NRB) show that the commercial banks as of Sunday collected deposits of Rs 5.973 trillion, and issued loans worth Rs 4.799 trillion. The credit to deposit ratio of the banks stood at 79.42 percent, way less than the regulatory threshold of 90 percent.
As the banks have been witnessing excess liquidity, the NRB in the past three months mopped a total of Rs 1.270 trillion from the market. The A class banks parked the aforementioned amount of their money at the central bank under the standing deposit facility.