Lending Rates Continue to Decline, Down by 5.18 Percentage Points in 28 Months

Banks and financial institutions in Nepal have been steadily reducing both deposit and lending rates in recent months. According to Nepal Rastra Bank (NRB), the weighted average lending rate has fallen continuously since Falgun 2079, dropping by 5.18 percentage points over the past 28 months to 7.85% as of Ashad-end 2081.

In Ashad 2078, lending rates had hit a low of 8.43%, before climbing to a peak of 13.03% in Falgun 2079. Since then, rates have been on a sustained downward trend. Just a year ago, in Ashad 2080, the weighted average lending rate stood at 9.93%.

Weak Demand for Credit Despite Lower Rates

Despite cheaper loans, demand for credit has remained weak due to sluggishness in the domestic economy. While remittance inflows have strengthened deposits in the banking system, limited credit expansion has led to excess liquidity across financial institutions.

Base Rates and Premiums Declining

The average base rate of commercial banks has fallen to 5.98%, compared to 8% a year earlier. With surplus liquidity, banks have also reduced the premium rate they add when determining lending rates. Previously, premiums were as high as 5%, but now banks are charging only 1–1.5% on average.

Lending Rates Across Credit Categories

Almost all categories of loans have seen significant reductions:

• Overdraft loans: Down from 11.33% to 8.62%

• Loans to deprived sectors: Down from 9.15% to 6.84%

• Housing loans: Down from 10.28% to 8.24%

• Real estate loans: 8.25%

• Margin lending (share-backed loans): Down from 10.50% to 7.86%

• Hire purchase loans: 8.39%

• Cash credit loans: 7.90%

• Bills discounting: 7.55%

Monetary Policy Supporting Rate Cuts

NRB’s monetary policy for FY 2081/82 has further encouraged lower interest rates by adjusting the interest rate corridor:

• Bank rate reduced from 6.5% to 6%

• Deposit collection rate reduced from 3% to 2.75%

• Policy rate reduced from 5% to 4.5%

These measures are expected to increase money supply in the market and push lending rates even lower in the coming months.