KATHMANDU, June 28: The average base interest rate of commercial banks has dropped below five percent—likely for the first time in Nepal’s banking history—as lenders struggle to expand credit in line with surging deposit collections.
For several years, banks have been successively reducing interest rates on deposits, which directly influence the base rate. A lower base rate also signals a potential decline in lending rates for borrowers.
According to reports from 20 commercial banks, the average base rate stood at 4.97 percent in the final month of the current fiscal year (FY 2025/26). Banks typically add a risk-based premium to the base rate to determine lending rates for their clients.
Revised interest rate corridor system introduced
Of these institutions, nine banks reported base rates below five percent. Standard Chartered Bank Nepal recorded the lowest at 4.21 percent. In contrast, NIC Asia Bank posted the highest at 6.04 percent, making it the only commercial bank with a base rate above six percent.
Despite significant growth in deposits, private sector credit demand has remained subdued. With investment expansion sluggish, banks are holding excessive liquidity, which has contributed to the sharp fall in interest rates.
Commercial banks collected more than Rs 7.254 trillion in deposits, up from Rs 6.530 trillion 11 months earlier. However, less than 40 percent of these deposits were mobilized into loans. During the review period, loan issuance rose from Rs 4.975 trillion to Rs 5.263 trillion—an increase of Rs 289 billion compared to Rs 723 billion in deposit growth.
Based on the Nepal Rastra Bank’s regulatory ceiling of a 90 percent credit-deposit (CD) ratio, banks are estimated to be holding around Rs 1.3 trillion in idle funds. The overall CD ratio has declined to 72.42 percent from 76.18 percent, while individual banks’ ratios have fallen to as low as 50 percent.
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