Interest rates on loans offered by commercial banks witness a decline

KATHMANDU: The interest rates on loans offered by commercial banks have recently witnessed a decline.

This shift is attributed to positive developments in the external sector and an uptick in remittances, leading to an increase in investable capital for banks and financial institutions.

Data indicates a noteworthy increase in deposits, accompanied by a concurrent reduction in loan interest rates.

Notably, the average interest rates of 20 commercial banks from mid-November to mid-December, standing at 9.71 percent, have dropped to 8.991 percent at December end, marking a substantial decrease of 0.62 percentage points.

The decrease in deposit interest rates has resulted in a reduction in the cost of capital for banks, subsequently contributing to the lowering of their base rates.

Consequently, borrowers stand to benefit as interest rates on loans become more affordable.

Changes in deposit interest rates directly impact the base rate, with an increase or decrease in deposits leading to a corresponding adjustment in the base rate.

Banks calculate the average base rate based on the preceding three months and apply this rate to determine loan interest rates.

Banks typically disburse loans by adding a premium of up to 5 percent to the base rate.

However, some banks are offering premium discounts. For instance, NIC Asia Bank has announced a reduced premium of 3 percent on loans.

When customers obtain loans, the base rate is not directly quoted; instead, banks determine the interest rate by adjusting the premium based on the customer’s relationship and creditworthiness.

Hence, it is advisable for customers to select a bank with a lower base rate when seeking loans.