The base interest rate of commercial banks has dropped to as low as 4.27 percent by mid-January, driven by excess liquidity in the banking system and weak demand for loans.
Records from 20 commercial banks show that the average base interest rate for the month of Magh (mid-January to mid-February) has been fixed at 5.36 percent. At the start of the current fiscal year in mid-July 2025, the average base rate stood at 6.2 percent—the lowest level in the past three years. The rate has continued to decline over the past six months amid a prolonged economic slowdown.
Compared to the same period last year, the base rate has fallen by 1.45 percentage points, down from 6.81 percent in mid-January 2025.
A bank’s lending rate is determined by adding a premium to its base rate. Depending on the nature of the loan and associated risk, banks typically charge a premium ranging from 1.5 to 5 percentage points above the base rate.
Currently, eight commercial banks have base rates below 5.5 percent. Standard Chartered Bank Nepal has the lowest base rate at 4.27 percent, followed by Rastriya Banijya Bank at 4.42 percent. In contrast, NIC Asia Bank has the highest base interest rate at 6.45 percent.
According to Devendra Raman Khanal, Chief Executive Officer of Rastriya Banijya Bank, the base rate has declined to a record low due to excess liquidity in the banking system. “Interest rates fall when loan demand is weak,” Khanal said.
Due to the sluggish demand for credit, many banks are offering loans with premiums as low as 0.25 percent. As a result, interest rates on auto loans and home loans have dropped to below six percent per annum.
Since May 2024, banks have maintained their average base rates at single-digit levels. However, despite the sharp decline in lending rates, banks have struggled to expand their loan portfolios because of the ongoing economic slowdown.
Data from Nepal Rastra Bank (NRB) shows that commercial banks have collected deposits worth Rs 6.909 trillion as of Thursday, while total loans stand at Rs 5.128 trillion. The credit-to-deposit (CD) ratio of banks and financial institutions is 74.30 percent, well below the regulatory ceiling of 90 percent.
