Kathmandu. Liquidity continues to accumulate in banks and financial institutions as the demand for credit in the banking system remains relatively weak. The impact of this has also been seen on the interest rate of deposits made public by commercial banks for August.
Out of 20 commercial banks, five banks have reduced their interest rates compared to July, while most of them have continued the rates of the previous month. In August, the average interest rate of banks for personal deposits has been limited to 4.136 percent. In July, this rate was 4.1675 percent. That is, the average maximum rate has decreased by 0.0315 percentage points in a month.
Interest rates on institutional deposits have also come down. The maximum rate of institutional deposit has come down to 3.081 percent in August from an average of 3.116 percent in August. This indicates that there is a competition among banks to reduce the cost of available resources rather than to attract deposits.
Biggest Cut of Siddhartha
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Siddhartha Bank has reduced the interest rate on personal deposits in August. On the individual side, the bank reduced the rate by 0.29 percentage points to 3.76 percent. Institutional deposits have also been reduced by 0.20 percentage points to 3.05 percent.
Nepal Bank has reduced the personal deposit rate by 0.10 percentage points to 4.15 percent. Institutional deposits have been reduced by 0.50 percentage points to 3.50 percent. Similarly, Citizens Bank has reduced the interest rate on personal deposits to 3.85 percent. Similarly, Kumari Bank has fixed interest rate of 3.76 percent and Standard Chartered Bank has fixed interest rate of 3.80 percent.
15 Banks continue with old interest rates
The number of banks that did not change the interest rate in August is 15. Nabil Bank and Prabhu Bank have fixed the maximum interest rate of 4.55 percent on personal deposits.
Similarly, Nepal Investment Bank Mega, NMB, Sanima, Machhapuchchhre Bank, Rastriya Banijya Bank and Global IME Bank have continued the same rate set in mid-August.
Despite the availability of sufficient funds in the banking system, the demand for loans has not increased in the same proportion. As a result, deposits in banks are increasing, but credit expansion is relatively slow. In such a situation, banks have adopted a strategy to reduce the cost rather than paying more interest for deposits.
If liquidity in the banking system continues, it is unlikely that there will be a big increase in deposit interest rates in the coming months. While this may put pressure on depositors’ returns, it can also lay the groundwork for banks to make lending interest rates more competitive by reducing their input costs.
