Commercial banks lowering interest rates on deposits from Tuesday

Lending rate has come down to an average of 10.55 percent as of mid-April, which further will go down in future: Bankers

KATHMANDU, May 14: A number of commercial banks of Nepal have decided to lower the interest rates on their deposits effective from Tuesday.

According to the commercial banks, they have decided to maintain the interest rate on fixed deposits at a maximum of 7.06 percent, down from the average of 7.14 percent per annum as of now. The banks have taken the move citing the slow demand for loans amid excessive liquidity with them.

The records with Nepal Rastra Bank (NRB) show that the commercial banks collected deposits worth Rs 5.461 trillion, while they provided loans of Rs 4.520 trillion until last week. It shows that the banks have excess funds of Rs 941 billion. The credit-deposit ratio has also come down to 80.51 against the ceiling of 90 percent enforced by the central bank.

Nine out of 20 commercial banks have announced reducing their interest rates on deposits. These include Everest Bank, Nabil Bank, Sanima Bank, Siddhartha Bank, NMB Bank, Citizens Bank International, Prime Commercial Bank, Rastriya Banijya Bank and Nepal SBI Bank. Of these, Nepal SBI Bank has maintained the interest rate at the lowest of 6.39 percent per annum, a drop from 6.53 percent.

Almost all the banks have fixed the interest rates below 8 percent. NMB Bank and NIC Asia Bank have maintained their interest rate on fixed deposits at the highest of 7.8 percent per annum.

Meanwhile, the lending rates of the commercial banks have come down to an average of 10.55 percent as of mid-April, according to the NRB report. It is the lowest interest rates of banks in the past 27 months. In April 2021, banks’ interest rate on loans reached as high as 13.03 percent per annum.

The banks have started reducing the interest rates on deposits to reduce their cost of funds. According to bankers, the lending rates will fall along with the drop in interest rate on deposits in the coming days. “As the loan amount has not increased as expected, it is likely that the banks will either reduce their lending rates or let them remain unchanged,” said a banker.

The NRB record shows that the banks have been unable to extend their lending to the private sector against the target set by the central bank. For the current fiscal year, the NRB has set the target to increase private sector lending by 11.5 percent, but banks and financial institutions have increased lending by only 5.1 percent under the heading in nine months of the current fiscal year.