Commercial Banks Reduce Base Interest Rates to 7.92% Amid Surplus Loanable Funds

Commercial banks in Nepal have reduced their average base interest rate to 7.92% for the period between mid-August and mid-September, driven by an excess of loanable funds. This marks a 0.25 percentage point decrease compared to the previous months, signaling a potential reduction in lending rates in the near future.

According to reports from the 20 commercial banks, Standard Chartered Bank has set the lowest base rate at 6.22%, followed by state-owned Rastriya Banijya Bank with a rate of 6.66%. On the higher end, NIC Asia Bank maintains the highest base rate at 9.22%, while Kumari Bank follows closely with 8.90%.

Over the past few months, banks have been gradually lowering their interest rates, with the average base rate consistently remaining in single digits since May 2024.

The lending rate of a bank is determined by adding a premium to its base rate, which typically ranges from 1.5% to 5%, depending on the nature of the loan and associated risks.

The reduction in base rates comes amid an economic slowdown, rising non-performing assets (NPAs), and challenges related to capital adequacy ratios. However, banks have shown improvement in key areas, including increased lending for auto loans and loans secured against shares as collateral. Records from Nepal Rastra Bank also reveal that banks have reduced a portion of their NPAs while strengthening their capital adequacy positions.

As lending rates are likely to follow the downward trend in base rates, businesses and individuals may benefit from more affordable loan opportunities in the coming months.