Despite a steady rise in deposits at banks and financial institutions (BFIs) driven by remittance inflows, credit expansion remains sluggish. While deposits have increased and banks have reduced interest rates, credit flow to the private sector has been limited due to stagnant economic activity.
According to Nepal Rastra Bank (NRB), BFIs increased lending by Rs 304.82 billion as of mid-March in the current fiscal year (FY 2024/25), reflecting a 6 percent rise compared to the same period last fiscal year.
NRB’s monetary policy had projected a 12.5 percent credit growth to the private sector—equivalent to around Rs 650 billion—for the entire fiscal year. However, in the first eight months, less than half of this target has been met.
Bankers attribute the sluggish credit expansion to weak economic activity. Santosh Koirala, President of the Nepal Bankers’ Association, said that although interest rates have dropped significantly, demand for credit has not picked up accordingly.
Nevertheless, NRB has noted some recent improvement in credit growth, largely driven by increased imports. As of mid-March, import-related lending showed the strongest growth among loan categories. Trust receipt loans surged by 58.1 percent. Likewise, margin lending rose by 31.5 percent, term loans by 3.7 percent, hire purchase loans by 4.7 percent, cash flow-based loans by 3.6 percent, and real estate loans (including personal residential home loans) by 5.95 percent. In contrast, overdraft loans fell by 12.6 percent.
As of Monday, BFIs had deposits worth Rs 6818 billion and disbursed loans totaling Rs 5489 billion. The credit-to-deposit (CD) ratio currently stands at 79.27 percent.
With a regulatory ceiling of 90 percent on the CD ratio, banks still have room to extend an additional Rs 718 billion in loans.
Due to subdued credit expansion, NRB has continued to absorb excess liquidity from the banking system—an action with significant implications. As of April 10 in the current fiscal year, NRB had absorbed a total of Rs 1762 billion in liquidity.
