KATHMANDU, Oct 2: Commercial banks of Nepal have reduced their base interest rate to 7.69 percent from 7.92 percent for this month (mid-September to mid-October) citing excessive loanable funds lying with them.

According to the financial reports unveiled by the banks, they have lowered the base interest rate by 0.22 percentage points for the current month, compared to the previous month. Last month too, the banks had reduced the rate by 0.25 percentage points.

Of the 20 commercial banks, Standard Chartered Bank has maintained the base rate at the lowest of 6.03 percent. The state-owned Rastriya Banijya Bank, with its base rate of 6.37 percent, stands at second from bottom. Previously, the base interest rate of these banks stood at 6.22 percent and 6.66 percent, respectively.

Likewise, NIC Asia Bank maintains the base rate at 9.06 percent, the highest of all. In the previous month, the bank’s base rate was 9.22 percent. Kumari Bank’s base rate stands at 8.46 percent, down from 8.90 percent.

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.

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.

Despite a notable decline in the lending rates, banks have been unable to expand their loan portfolio due to ongoing economic slowdown. Although a number of banks have launched lucrative offers to attract the borrowers, they are not successful in their efforts.  

The records with Nepal Rastra Bank (NRB) shows that the commercial banks as of Sunday collected deposits of Rs 5.839 trillion, and issued loans worth Rs 4.643 trillion. As a result, the credit to deposit ratio of banks has come down to 78.51 percent, way less than the regulatory threshold of 90 percent.

As the banks have been witnessing excess liquidity, the NRB in the first two months of the current fiscal year mopped a total of Rs 6.708 trillion from the market. Of the amount, banks parked Rs 6.270 trillion under the standing deposit facility, while Rs 438.20 billion were deposited at the central bank through bidding process. Despite the effort of the central bank to mop liquidity, banks were reported to have excess liquidity of Rs 229.40 billion as of mid-September.

 
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