Non-banking assets (NBAs) of banks and financial institutions (BFIs) have seen a sharp rise in the first 11 months of the current Fiscal Year 2024/25, primarily due to an alarming increase in bad loans. According to Nepal Rastra Bank (NRB), NBAs surged by Rs 10.20 billion, climbing from Rs 35.50 billion in mid-July 2024 to Rs 45.70 billion by mid-June 2025.
This increase reflects the BFIs’ mounting struggle to recover loans and interest from borrowers, which has in turn raised the average non-performing loan (NPL) ratio to 5.24 percent, up from 3.98 percent a year ago.
NRB classifies NPLs into three categories based on the overdue duration: substandard, doubtful, and bad loans, with bad loans referring to debts overdue for more than one year. When these loans become irrecoverable, banks are forced to convert collateral into NBAs—fixed properties held by borrowers that are seized and auctioned off to recover the loaned amounts.
Commercial banks, which form the backbone of Nepal’s financial system, reported average NPLs of 5.05 percent. Their non-banking assets increased by Rs 8.60 billion, rising from Rs 30.19 billion to Rs 38.79 billion during the review period.
Development banks recorded NPLs of 5.56 percent, with their NBAs increasing by Rs 790 million to a total of Rs 4.16 billion. Finance companies showed the most severe NPL ratio at 13.04 percent, with NBAs rising by Rs 780 million, from Rs 1.96 billion to Rs 2.74 billion.
Despite the growing deposit base, credit expansion remained sluggish. As of July 7, commercial banks had collected an additional Rs 179 billion in deposits over a three-week span, bringing the total to Rs 6.437 trillion. However, they only issued Rs 19 billion in new loans, with total lending reaching Rs 4.966 trillion, highlighting a significant gap between deposits and credit flow.
This growing mismatch, combined with increasing NBAs and NPLs, raises further concerns about financial sector health as the fiscal year nears its end.
