Banks and financial institutions (BFIs) in Nepal are accumulating investable capital, leading to an increase in credit flow, primarily driven by a rise in foreign trade. The growing demand for loans in import-related businesses, the stock market, and vehicle purchases has contributed to this upward trend in lending.
According to Nepal Rastra Bank (NRB), credit flow from BFIs to the private sector increased by Rs 283.46 billion (4.1 percent) in the current fiscal year (FY) up until mid-February. This marks a 5.6 percent rise compared to the same period in the previous fiscal year when credit flow had increased by Rs 197.21 billion (4.1 percent).
Although BFIs have been collecting more deposits than they have been lending, this trend is expected to shift by the end of the current fiscal year. NRB data shows that deposits in BFIs increased by Rs 245.34 billion (3.8 percent) by mid-February.
The overall increase in credit flow is largely attributed to the rise in loans associated with foreign trade. Merchandise exports surged by 46.5 percent in the first seven months of FY 2024/25, reaching Rs 127.2 billion, while merchandise imports grew by 10.1 percent to Rs 988.59 billion during the same period.
Trust receipt (import) loans, which traders and industrialists use to finance imported goods, increased by 69.5 percent in the current fiscal year. Banks had disbursed Rs 82.83 billion in such loans by mid-July last year, which rose to Rs 140.39 billion by mid-February. Similarly, margin loans (share collateral loans) increased by 27.8 percent, hire purchase loans by 4.5 percent, and working capital loans (cash credit) by 3.7 percent compared to mid-July.
On the other hand, loans to low-income borrowers and overdraft loans have declined due to NRB’s tightened restrictions on lending in these categories. NRB spokesperson Ramu Poudel stated that the increase in credit flow is primarily linked to the rise in foreign trade. "With the increase in imports and exports, there has been some rise in bank loan disbursement," he said. "Some of these loans have also flowed into the stock market, real estate, and vehicle purchases."
Meanwhile, interest rates in the banking sector have declined. As of mid-February 2025, the average interest rate on loans stood at 8.55 percent for commercial banks, 9.90 percent for development banks, and 10.88 percent for finance companies. In comparison, interest rates during the same period last year were 11.08 percent for commercial banks, 12.85 percent for development banks, and 13.93 percent for finance companies.
NRB data also shows that remittance inflows increased by 7.3 percent to Rs 958 billion by mid-February.
Nepal’s current account remained in a surplus of Rs 166.8 billion as of mid-February, compared to a surplus of Rs 162.52 billion in the same period last year.
Similarly, the country’s total foreign exchange reserves, which stood at Rs 2,041.1 billion in mid-July 2024, increased by 16.1 percent to Rs 2,369.8 billion by mid-February 2025.
Based on seven months of imports in FY 2024/25, NRB’s report indicates that Nepal’s foreign exchange reserves are sufficient to cover 17.2 months of goods imports and 14.4 months of goods and services imports.
Meanwhile, consumer price inflation declined to 4.16 percent as of mid-February in the current fiscal year, down from 5.01 percent in the same period last year.
