Loans issued by banks and financial institutions (BFIs) to Nepal’s construction sector rose by 12.3 percent in the first 10 months of the current fiscal year, primarily due to lenient credit policies adopted by Nepal Rastra Bank (NRB). According to NRB data, loans to the sector reached Rs 25.54 billion by mid-May, up from Rs 19.97 billion during the same period last year.
Previously, BFIs had been hesitant to lend to the construction sector due to persistent challenges in recovering past loans. However, an April circular issued by NRB introduced measures to ease the financial pressure on contractors, allowing them to restructure or reschedule loans by paying only 10 percent of the interest due—provided they have pending payments from public bodies. This move encouraged BFIs to resume credit flow to the sector.
A senior banker noted that although lenders had been wary, NRB’s policy change “compelled them to issue more loans,” providing relief to a sector long affected by delayed government payments and economic slowdown.
Within the sector, heavy construction activities like highways and bridges witnessed the highest loan growth at 24 percent, while loans for residential construction grew by 3.8 percent. In contrast, credit to the non-residential segment declined by 6.2 percent.
The sector has endured consecutive years of contraction—negative 1.10 percent in FY 2022/23 and negative 2.07 percent in FY 2023/24—mainly due to sluggish public capital expenditure and broader economic challenges. The spike in prices of construction materials and the stagnation of the real estate market further compounded the issues.
Recent data from the National Statistics Office (NSO) showed signs of a turnaround. The sector grew by 9.1 percent in the second quarter of the current fiscal year, after contracting by 0.3 percent in the first quarter. The NSO projects a modest overall growth of 2.1 percent for the sector in FY 2024/25.
Economists believe that increased credit flow to construction could have a ripple effect across the economy by stimulating aggregate demand and revitalizing related industries.
