KATHMANDU, Aug 22: Lending interest rates of the commercial banks have declined to a 30-month low. Despite the low interest rates, banks have been struggling to expand their businesses due to the low demand for the bank loans.
The records with Nepal Rastra Bank (NRB) show that banks fixed their lending rates to as low as 9.93 percent per annum as of mid-July this year. It is the first time in the last 30 months that the banks have reduced their weighted interest rates to a single digit.
In January 2022, banks fixed their lending rate at an average of 9.44 percent per annum. Thereafter, the lending rate started to escalate in successive periods and reached as high as 13.03 percent in March 2023. Since that period, the interest rate on loans went into a slump over the past 15 months.
Revised interest rate corridor system introduced
In the past one year alone, the interest rate declined by around 2.4 percent points. According to the NRB, the banks’ weighted interest rate on loans stood at 12.30 percent as of mid-July, 2023.
Bankers said that the financial institutions are compelled to reduce their lending rates due to the low demand for loans in recent days. As of the end of the fiscal year 2023/24, the banks fixed their base interest rate at an average of eight percent per annum while the average interest rate on the banks’ deposits was 5.77 percent per annum.
Despite a notable drop in the lending rates, the banks have not been able to expand their loan portfolio of late. As a result, the credit-deposit ratio of banks last week came down to 78.98 percent against the regulatory upper cap of 90 percent, shows the NRB’s record.
“It is likely that the lending rate could decline further after the maturity of the fixed accounts in which depositors had kept money for a relatively longer period citing the high interest rates previously,” said a banker.
The banks are reported to have a loanable fund of around Rs 650 billion with them. Currently, the banks have been witnessing an increased demand for loans against shares. However, the demand for loans from the construction sector, production businesses and commercial sectors is pretty low, said bankers.
With having excessive idle funds, banks have now turned to depositing money with the NRB. On Sunday, the central bank called for accepting deposits of around Rs 100 billion from banks and financial institutions. In response, the central bank witnessed proposals from a total of 80 banks and financial institutions to accept double the amount.
