Commercial Banks Lower Deposit Interest Rates in Magh as Excess Liquidity Persists

Kathmandu:
Commercial banks in Nepal have further reduced deposit interest rates for the month of Magh, reflecting sustained excess liquidity and weak credit demand in the banking system. A comparison of interest rates for Magh and Poush shows a broad downward adjustment across the sector, with only one bank increasing its rate, while the majority either reduced or maintained their previous levels.

Overall Trend: Declining Average Rates

The average deposit interest rate has declined from 4.85 percent in Poush to 4.70 percent in Magh, confirming a continued easing trend. This decline is not marginal but structural, indicating that banks are under reduced pressure to attract deposits due to surplus funds.

Out of the 20 commercial banks,

• 12 banks reduced their interest rates,

• 7 banks kept rates unchanged, and

• only Prime Commercial Bank increased its rate, from 4.25 percent to 4.40 percent.

Banks Offering the Highest and Lowest Returns

In Magh, Global IME Bank continues to offer the highest interest rate at 5.50 percent, despite a slight reduction from 5.55 percent in Poush. Several other banks, including Nepal Bank, Rastriya Banijya Bank, NIC Asia, NMB Bank, Nepal Investment Mega Bank, and Himalayan Bank, are clustered around the 5 percent level.

On the lower end, Standard Chartered Bank Nepal offers the lowest rate at 4.36 percent, down from 4.60 percent in the previous month. Other banks such as Agricultural Development Bank, Everest Bank, Laxmi Sunrise, Kumari Bank, Sanima Bank, Citizens Bank, and Machhapuchchhre Bank have also reduced rates by 20 to 50 basis points.

Stable but Selective Banks

A few banks—including Nepal Bank, NIC Asia, Prabhu Bank, Nabil Bank, and Rastriya Banijya Bank—have kept their interest rates unchanged, suggesting a wait-and-watch approach rather than aggressive repricing.

Prime Commercial Bank’s rate hike stands out as an exception, likely reflecting short-term liquidity management needs or a strategy to stabilize its deposit base rather than a broader market shift.

What Is Driving the Decline?

The primary driver behind falling deposit rates is excess loanable funds in the banking system. Banks currently have more than NPR 11 trillion available for lending, but credit demand remains subdued, particularly from the private sector.

Due to limited loan disbursement opportunities, banks are forced to park surplus funds with Nepal Rastra Bank (NRB) at relatively low returns of 2.67 to 3 percent. To manage this excess liquidity, NRB has been issuing one-year bonds, which has absorbed approximately NPR 873 billion so far.

Deposit–Credit Imbalance

As of now, banks and financial institutions have mobilized NPR 7.659 trillion in deposits, while total credit outstanding is only NPR 5.728 trillion. This wide gap underscores the mismatch between deposit growth and lending activity, reinforcing downward pressure on interest rates.

Implications for Depositors and the Economy

For depositors, the declining trend means lower returns on fixed deposits, making traditional saving instruments less attractive. However, banks are offering around one percentage point higher interest on remittance-linked deposits, signaling an effort to retain foreign currency inflows within the formal banking channel.

From a macroeconomic perspective, the falling interest rates indicate slow economic momentum, weak investment appetite, and cautious private-sector borrowing. Unless loan demand improves through higher capital spending, private investment, or policy stimulus, deposit rates are unlikely to rebound in the near term.

The Magh interest rate data clearly shows that Nepal’s banking sector is operating under liquidity surplus conditions rather than credit scarcity. While this ensures system stability, it also highlights deeper economic challenges. A sustainable recovery in deposit returns will depend not on banking competition alone, but on revival in economic activity, investment confidence, and credit expansion.