Falling Deposit Rates Signal Prolonged Liquidity Surplus in Banking Sector

Published on December 15, 2025

Kathmandu — Commercial banks in Nepal have once again reduced deposit interest rates for the month of Poush, continuing a downward trend that has persisted for several months. The latest revision indicates that returns for depositors are shrinking further, reflecting weak credit demand and excess liquidity in the banking system.

Despite steady growth in deposits, banks have been unable to expand lending at the expected pace. Sluggish private-sector borrowing has resulted in funds piling up within banks, creating a surplus liquidity situation. As liquidity increases and loan demand remains subdued, banks have little incentive to offer higher interest rates on deposits, pushing rates steadily lower.

Average Individual Fixed Deposit Rates Fall Below 5 Percent

Data for Poush shows that 13 out of 20 commercial banks have reduced the maximum interest rate on individual fixed deposits compared to Mangsir. As a result, the average maximum rate declined by 0.31 percentage points, falling to 4.73 percent from 5.04 percent a month earlier.

This marks a notable shift, as the average individual fixed deposit rate has now fallen below the psychological 5 percent threshold, underscoring the depth of the rate-cut cycle. Bankers say the decline reflects excess liquidity rather than competitive pressure among banks.

Banks Leading the Rate Cuts

Among the banks that reduced rates most aggressively, Prime Commercial Bank, Global IME Bank, and Rastriya Banijya Bank cut their maximum rates by 0.5 percentage points each. Prabhu Bank and Agriculture Development Bank followed with 0.4 percentage point reductions, while Kumari Bank lowered its rate by 0.38 percentage points.

These cuts suggest that banks with relatively stronger deposit growth are adjusting pricing to discourage further inflows, as maintaining surplus liquidity carries costs under current regulatory and market conditions.

Some Banks Hold Rates Steady

In contrast, seven commercial banks opted to maintain their previous rates. Citizens Bank, Machhapuchhre Bank, NIC Asia Bank, Siddhartha Bank, Nepal Investment Mega Bank, NMB Bank, and Himalayan Bank did not revise their individual fixed deposit rates for Poush.

Market analysts say this divergence reflects differences in liquidity positions and funding strategies, with some banks still preferring rate stability to protect depositor relationships.

Highest and Lowest Returns for Depositors

For Poush, Global IME Bank and Himalayan Bank are offering the highest maximum individual fixed deposit rate of 5.5 percent, while Prime Commercial Bank is offering the lowest, at 4.25 percent.

The narrowing gap between the highest and lowest rates indicates a reduced competitive spread, suggesting that banks are broadly aligned in their expectations of continued weak loan demand.

Institutional Deposit Rates Also Decline

The downward trend is not limited to retail depositors. Institutional fixed deposit rates have also declined, with the average maximum rate falling by 0.22 percentage points to 3.36 percent from 3.58 percent in Mangsir.

Only five commercial banks reduced institutional deposit rates, while the remaining 15 banks kept rates unchanged. Analysts note that institutional deposits are more sensitive to liquidity conditions, and even modest rate adjustments can significantly affect large-volume funds.

Liquidity Surplus Drives the Trend

Banking experts attribute the sustained rate decline to a structural liquidity surplus, driven by weak investment activity, cautious borrowing behavior, and slow credit growth. While deposit growth has continued due to limited alternative investment avenues, lending has not kept pace, compressing banks’ interest margins.

As long as credit demand remains subdued, banks are expected to prioritize balance-sheet management over aggressive deposit mobilization, keeping rates under pressure.

Impact on Depositors and the Economy

For depositors, falling interest rates mean lower real returns, particularly in an environment where living costs remain elevated. This could gradually push savers toward alternative investment instruments, including equities or real assets, though risk appetite remains cautious.

From a macroeconomic perspective, persistently low deposit rates signal weak economic momentum, reinforcing concerns that monetary easing alone may not be sufficient to stimulate lending without stronger business confidence and investment demand.

Outlook: No Immediate Reversal Expected

Given current trends, bankers and analysts do not expect a near-term rebound in deposit rates. Unless loan demand improves meaningfully or liquidity tightens, deposit interest rates are likely to remain low in the coming months.

The data from Poush suggests that Nepal’s banking sector is entering a phase where managing excess liquidity, rather than attracting deposits, has become the central challenge.

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