KATHMANDU, March 26: The base interest rate of commercial banks has declined by 0.09 percent for this month amid persistent excessive liquidity in the banking system.
According to statements released by 20 commercial banks, they have maintained an average base interest rate of 5.20 percent for the period between mid-March and mid-April. The rate was 5.29 percent last month.
Five banks—including Rastriya Banijya Bank, Standard Chartered Bank Nepal, Everest Bank, Nabil Bank, and Nepal Bank Limited—have fixed their base rates below five percent. The base rate of Rastriya Banijya Bank stands the lowest at 4.30 percent. On the other hand, NIC Asia has maintained its base rate at 6.32 percent, the highest among all.
Revised interest rate corridor system introduced
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 of between 1.5 and 5 percentage points on top of the base rate when providing loans to their clients.
Citing low demand for loans, many banks have been found issuing loans even by adding a premium of just 0.25 percent. Interest rates on auto loans and home loans have fallen below six percent per annum.
Since May 2024, banks have been maintaining their average base rate in single digits. Despite a notable decline in lending rates, banks have been unable to expand their loan portfolio due to the ongoing economic slowdown.
Records from Nepal Rastra Bank show that commercial banks had collected deposits of Rs 7.107 trillion as of Monday and issued loans worth Rs 5.175 trillion. The credit-to-deposit (CD) ratio of banks and financial institutions stands at 73.97 percent, compared to the regulatory threshold of 90 percent.
Due to an accumulation of excess loanable funds, banks have been found to have increased their lending for share purchases aggressively in recent days. As of mid-February, 20 commercial banks had provided margin loans of Rs 133.07 billion, up from Rs 93.12 billion in the same period last year. The banks have been providing loans against share collateral at rates as low as 5.73 percent.
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