10th November 2024, Kathmandu
The ongoing economic slowdown has impacted the investment in loans, directly affecting interest rates. With an increase in the availability of funds in the banking system, interest rates have fallen significantly, reaching single-digit figures.
Nepal’s Sluggish Credit Growth Rate Cuts
Over the past year, loan interest rates have dropped by 26.5%, easing the burden on borrowers. However, despite this reduction, the anticipated increase in credit flow has not materialized.
In the last year, the average base rate of banks decreased by 2.64 percentage points, now averaging 26.40%. This has further dropped to 7.36% in the current fiscal year, compared to 10% during the same period last year. The decline in deposit interest rates has contributed to this reduction in base rates for banks.
Among the banks, Standard Chartered recorded the most significant decrease, with its base rate falling by 32.18% to 5.71%, from 8.42% last year. Similarly, Agricultural Development Bank’s base rate decreased by 31.88% to 7.07%, down from 10.38% in the previous year. Kumari Bank’s base rate also saw a decrease of 31.43%, dropping to 7.48% from 10.91%.
Other banks, such as Everest Bank, National Commercial Bank, and Laxmi Sunrise Bank, also experienced a reduction in base rates. Everest Bank’s base rate dropped by 29.89% to 6.80%, National Commercial Bank’s by 29.31% to 6.15%, and Laxmi Sunrise Bank’s by 27.87% to 7.79%.
Despite the drop in base rates, loan interest rates have also fallen by an average of 26.5%. While this decrease has made it easier for borrowers to repay loans, the expected increase in loan disbursement has not occurred. Banks had anticipated a rise in lending during the festive season, but the credit flow has not increased as expected.
Despite central banks’ efforts to ease credit disbursement through flexible policies, overall credit distribution has remained sluggish. While interest rates have dropped, the anticipated economic recovery has not yet materialized.
For more: Nepal’s Sluggish Credit Growth Rate Cuts
