KATHMANDU, Sept 16: Commercial banks of Nepal have reduced interest rate on deposits by an average of 0.04 percentage points for the next one month starting Thursday.
According to the interest rate schedules published by the commercial banks, the average interest rate for individual fixed deposits of the commercial banks stands at 4.08 percent for the one month period between mid-September and mid-October. The figure was 4.13 percent last month, while it was 4.16 percent in the previous month.
Revised interest rate corridor system introduced
The average interest rate of banks has been in a downward trend for the past few years, owing to the excessive liquidity with the banks. A drop in deposit interest rates lowers the base rate, thereby exerting downward pressure on lending interest rates. A decrease in interest rates for individual fixed deposits typically leads to a reduction in rates for savings accounts, institutional fixed deposits, and loans.
Among 20 commercial banks, four have slightly reduced their interest rates for next month, while sixteen have kept them unchanged. The banks that lowered their rates include Nabil Bank, Everest Bank, Standard Chartered Bank and Kumari Bank.
Currently, banks have an excessive amount of loanable funds while they have been lagging behind in credit disbursement. Recently, Nepal Rastra Bank has been aggressively mopping up liquidity, offering tools for long-term periods. The central bank has been withdrawing funds from banks using instruments such as deposit collection and standing deposit facility.
However, the measures of the central bank have been unable to maintain interest rate stability in the economy. As a result, the credit-deposit ratio of banks and financial institutions has come down to 71.48 percent, against the regulatory threshold of 90 percent.
