Determinants of Lending Interest Rate of Nepalese Commercial Banks

Abstract

This research analyzes the determinants of lending interest rates of commercial banks in Nepal. The lending interest is the main source of income for any financial institution. Secondary data has been collected from the annual reports of seven commercial banks for the study. Using convenience sampling techniques only seven banks are taken as samples out of 21 commercial banks in Nepal. 35 observations of the study are analyzed and interpreted using correlation and simple regression analysis. The study is based on the dependent variable lending interest rate and independent variables: liquidity ratio, deposit interest rate, return on assets, default risk, gross domestic production, and inflation. This study found a statistically positive and significant effect of deposit interest rate, return on assets, and inflation on the lending interest rate of commercial banks in Nepal.