Despite a nominal increase in lending, banks still struggle to increase lending by a notable rate
KATHMANDU, March 2: Nepali commercial banks have reduced the base interest rates by an average of 0.19 percentage points for the month of mid-February and mid-March, to attract the borrowers amid the struggle they face to increase their lending.
With the new revision, the banks’ average base interest rate stands at 6.61 percent, from 6.81 percent a month ago. Last month too, the commercial banks lowered their base interest rate by an average of 0.21 percentage points.
Revised interest rate corridor system introduced
According to the reports of the 20 commercial banks, all of them have reduced their base rate for the ongoing month. Standard Chartered Bank Nepal has maintained its base interest rate at 5.19 percent, the lowest among all followed by Rastriya Banijya Bank and Everest Bank with base interest rates of 5.44 percent and 5.63 percent, respectively.
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.
With its base rate at 7.53 percent, NIC Asia Bank has the largest interest rate amongst all. Prime Bank has maintained the base rate at 7.16 percent, Laxmi Sunrise Bank 7.13 percent and Kumari Bank has kept its base rate at 7.12 percent.
According to Nepal Rastra Bank, commercial banks collected deposits worth Rs 5.993 trillion, while they lent Rs 4.832 trillion, as of last Monday. Compared to the previous day, the deposit collection declined by a nominal amount and lending amount increased marginally. The credit to deposit ratio of the banks stood at 79.69 percent, way less than the regulatory threshold of 90 percent.
Despite the nominal improvement in the lending portfolio, Nepali banking system still has excessive loanable funds of over Rs 700 billion. According to bankers, they struggle to increase their lending due to the ongoing economic slowdown and weakened investors’ confidence to inject more capital in their businesses.
It has been over a year that the Nepali commercial banks have been lowering their interest rates to attract the borrowers. Since May 2024, banks have been maintaining their average base rate in single digits.
