KATHMANDU: As of mid-July, lending interest rates from Nepal's commercial banks had fallen to 9.93 percent annually, the lowest level in thirty months. This is the first time that the average interest rate has dropped to a single digit in more than 2.5 years. The decrease comes after a stretch of rising rates that saw a peak of 13.03 percent in March 2023 and a sharp dip over the next 15 months.
Due to weak credit demand, banks are finding it difficult to grow their loan portfolios even with this decline. At 12.30 percent in July 2023, the average lending rate represented a decrease of around 2.4 percentage points in the previous year. The base interest rate that banks offer is fixed at approximately eight percent annually, while the deposit interest rate is set at 5.77 percent. Nonetheless, the ratio of credit to deposits has decreased to 78.98 percent, suggesting a lack of use of the available money.
The banks have substantial idle funds, estimated at around Rs 650 billion, leading them to deposit money with the Nepal Rastra Bank (NRB). Recently, the NRB called for deposits of Rs 100 billion from banks but received double the amount in proposals. The demand for loans has been particularly weak in sectors like construction and production, while there is some increased interest in loans against shares.
