Majority of banks in Nepal slash deposit interest rates amid liquidity surplus

Credit crunch looms as commercial banks grapple with liquidity mismatch

KATHMANDU: With the exception of NMB Bank and Everest Bank, all commercial banks in Nepal have recently lowered the maximum interest rates on deposits, responding to an excess of liquidity.

The reduction in interest rates applies to both savings and fixed deposits, constituting 26.3% and 60.7%, respectively, of the total deposits in these banks.

The move to decrease deposit interest rates is aimed at reducing costs for the banks, which are grappling with a surplus of liquidity while struggling to extend loans. Since mid-July (Shrawan), banks have been consistently lowering interest rates on deposits.

NMB Bank has maintained its interest rate at 9%, while Everest Bank has kept it at 8%. Conversely, all other banks have opted to lower their interest rates. Government-owned banks, in particular, have displayed increased enthusiasm, actively competing to reduce interest rates.

The Nepal Rastra Bank (NRB) conducted a monetary review in mid-September to mid-October (Asoj), offering some flexibility in its policy and bank rates. Following this, commercial banks have continued to lower interest rates, with further reductions taking effect from January 15.

A senior official at the NRB commented on the aggressive stance taken by banks, suggesting that it signals a need for the NRB to further decrease policy rates.

The official noted that while an increase in demand for loans, especially in unproductive sectors, might have warranted a different approach, the current scenario indicates improved liquidity without such concerns. Therefore, the official suggests that a reduction in policy rates may be considered during the half-yearly review.

Fiscal Nepal |
Sunday January 14, 2024, 12:35:09 PM |

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