Loan disbursement slowdown triggers interest rate cuts by Nepalese banks

KATHMANDU: Despite having nearly NPR 700 billion in surplus investable funds, Nepal’s commercial banks have reduced deposit interest rates for the month of September due to sluggish loan disbursement. The Nepal Rastra Bank (NRB) had hinted at this reduction by lowering the policy rate through its recent monetary policy, signaling financial institutions to further decrease interest rates.

In the current fiscal year’s monetary policy, the NRB reduced the policy rate by 0.5 basis points, bringing it down to 5%. Following this directive, many banks and financial institutions have adjusted their interest rates accordingly.

Most banks have now set the interest rate on fixed deposits of up to one year between 4.5% and 5.5%. Alongside the reduction in fixed deposit rates, banks have also lowered the interest rate on ordinary savings accounts to around 3%. This is in line with the NRB’s mandate to keep the deposit collection rate at 3%.

Some banks, like Standard Chartered, have kept their interest rates stable, while others have reduced rates by 0.2 to 1 percentage points. With deposit interest rates declining in July and August, it is anticipated that loan interest rates will also drop in October. Lower deposit rates mean a reduction in banks’ cost of funds and base rates, potentially leading to single-digit interest rates on loans by October.

For instance, Nepal Bank Limited has set its maximum interest rate on fixed deposits at 5.25%, with a minimum term of two years. Compared to July, this is a 1 percentage point reduction for September. Standard Chartered Bank has maintained a consistent interest rate of 4.75% for deposits under one year, 5% for one to five years, and 7% for more than five years.

Nabil Bank has also reduced its fixed deposit rates for September, offering 5% for deposits under one year, 5.5% for one to two years, 6.5% for two to five years, and 7% for more than five years. Similarly, Siddhartha Bank has cut its rates to 5% for deposits under one year and 6.5% for deposits over two years.

Himalayan Bank has decreased all types of fixed deposit rates by 0.5 percentage points. For September, it offers 3.25% for three-month deposits, 4% for six-month deposits, 4.75% for nine-month deposits, and 5.75% for one to two-year deposits. For deposits over five years, the interest rate is set at 7%.

Sanima Bank has also reduced its fixed deposit rates. For September, it offers 4.95% for deposits of three to six months, down from 5.15% in July, and 5.7% for six months to one year. For deposits over one year, the rate is set at 6.2%.

Rastriya Banijya Bank offers 4.25% for one-year deposits and 5.25% for one to three-year deposits, down by 0.25 basis points from July. Prabhu Bank has decreased its fixed deposit rates by 0.4 percentage points, offering 5.1% for deposits of six months to one year, 5.6% for one to five years, and 6.1% for more than five years.

NMB Bank has maintained July’s interest rates for fixed deposits of up to six months but has reduced the rates for longer periods. It now offers 5% for one to three-year deposits, down from 5.5% in July, and 6.1% for deposits over five years, down from 7.53%.

Everest Bank has also reduced its fixed deposit rates by 0.5 percentage points for September, offering 4.5% for deposits of three months to two years, 5% for two to five years, and 6.1% for deposits over five years.

Laxmi Sunrise Bank has continued with July’s interest rates for September, offering 5.25% for three-month deposits, 5.25% for six months to one year, and 6.5% for deposits over one year. Global IME Bank has also maintained its rates from July, offering 4% for three to six months, 5% for six months to one year, and 5.5% for one to two-year deposits.

Nepal SBI Bank has reduced its interest rate for three to six-month deposits by 0.2 basis points to 4% for September while maintaining July’s rates for longer terms.