Banks’ Average Base Rate Falls to 5.60%

Amid excess liquidity in the banking system, banks continue to lower interest rates on deposits, making the loans cheaper.

The average base rate of commercial banks dropped to 5.60 percent in Ashoj (mid-September to mid-October 2025), down from 7.33 percent during the same period last year.

According to Nepal Rastra Bank’s (NRB) guideline on base rate determination, banks calculate their base rate by adding a 0.75 percent return to their cost of funds. Loan rates are then set by adding a premium to the average base rate of the previous three months. Consequently, loan rates automatically fall when base rates decline and rise when they increase. However, the premium rate agreed upon in a loan contract between a bank and its borrower remains fixed.

Currently, banks apply a premium ranging from 0.25 percent to 4 percent above the base rate, depending on the investment sector and the borrower’s risk profile.

All commercial banks recorded lower base rates during the period, with three banks posting rates below 5 percent. Among the 20 commercial banks in operation, Standard Chartered Bank Nepal reported the lowest base rate at 4.27 percent, while NIC Asia Bank had the highest at 6.60 percent.

Former banker Anal Raj Bhattarai said falling deposit rates have reduced banks’ costs, lowering base rates and making borrowing cheaper. “The environment has become favourable for obtaining loans at lower interest rates,” Bhattarai said. “If the available capital in banks can be effectively mobilised, it will help further stimulate the economy.”

With liquidity remaining high, NRB has continued to mop up excess funds to keep interest rates within its targeted corridor. On Sunday, November 9, the central bank issued an 84-day deposit collection instrument, absorbing Rs 30 billion from the market. Banks had submitted bids worth nearly double the required amount — Rs 59.15 billion.

By Sunday, banks had deposited Rs 795 billion in the central bank through standing deposit facilities and deposit collection instruments. To maintain the lower limit of the interest rate corridor, NRB Governor Dr Biswonath Poudel said Saturday that the central bank would need to spend Rs 25 billion this fiscal year.