Banks slash deposit interest rates in response to surplus funds and diminished loan demand

Credit crunch looms as commercial banks grapple with liquidity mismatch

KATHMANDU: Several commercial banks and development banks have recently implemented a reduction in their deposit collection interest rates, effective from this Friday.

As indicated in a statement released by the concerned banks, a total of 13 commercial banks have adjusted their interest rates for both personal and institutional deposits. The maximum interest rates for individual deposits have been lowered from 9.964 percent to 9.632 percent, while institutional deposits now carry interest rates reduced from 7.8526 percent to 7.546 percent.

Among the 13 banks that revised their rates, NIC Asia stands out as the most significant reducer, announcing a 2.035 percent reduction to set its interest rates at 8.968 percent. Following suit, NMB Bank is the second-highest reducer, with a 1.243 percent decrease, bringing its interest rate to 9.76 percent.

Five commercial banks have chosen to maintain their existing interest rates, while Machhapuchchhre Bank has opted to increase its interest rate to 10.60 percent per annum. Consequently, the adjusted rates in Nepali commercial banks will now offer interest rates on fixed deposits ranging between 5.25 percent and 10.603 percent.

Over the past few months, banks have found themselves with an excess of loanable funds due to a low demand for borrowing despite increasing deposits. The prevailing high interest rates on loans have hindered effective fund mobilization, according to bankers.

Citing the diminished demand for loans, banks have decreased their base interest rates by 0.13 percent over the past year. In mid-October of the previous year, the average base rate of commercial banks was 10.11 percent, which has since dropped to 9.98 percent as of a month ago.

Sunil KC, president of the Nepal Bankers’ Association, explained that despite a noticeable decrease in base rates, banks have struggled to expand their credit portfolio in recent days, largely due to the minimum premium rates charged on top of base rates when issuing loans.

Simultaneously, national-level development banks have also declared their intention to reduce interest rates to single digits starting this Friday. According to public notices from these development banks, five have lowered their average interest rate to 9.74 percent, down from the previous 10.25 percent.

Among eight national-level ‘B’ class banks, Lumbini Development Bank and Shangri-la Development Bank have chosen to buck the trend, increasing their interest rates by 0.35 percent to 10.60 percent.

Fiscal Nepal |
Friday November 17, 2023, 10:19:21 AM |

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