Kathmandu: Lending by Nepal’s banks and financial institutions (BFIs) to the private sector slowed sharply during the first 11 months of the current fiscal year, highlighting weak business confidence and subdued investment demand despite ample liquidity in the banking system.
According to the Current Macroeconomic and Financial Situation Report released by Nepal Rastra Bank (NRB), private sector credit expanded by 6.2 percent during the review period, with BFIs disbursing Rs 340.57 billion in new loans. Total outstanding credit to the private sector reached Rs 5.838 trillion by mid-June.
The growth marks a notable slowdown compared to the same period last fiscal year, when private sector lending had increased by 8 percent, equivalent to Rs 407.62 billion. The current pace also remains well below the central bank’s annual credit growth target of 12 percent.
Bankers attribute the sluggish lending primarily to weak economic activity, cautious borrowing by businesses, and growing concerns over loan recovery.
Santosh Koirala, President of the Nepal Bankers’ Association, said recovering existing loans has become one of the banking sector’s biggest challenges this year amid the prolonged economic slowdown and tighter regulatory environment.
According to Koirala, commercial banks alone have yet to recover Rs 388.37 billion in outstanding interest payments as of the first 11 months of the fiscal year, limiting their ability to expand fresh lending.
Among different categories of financial institutions, commercial banks recorded 6.3 percent credit growth, while development banks expanded lending by 5.6 percent and finance companies registered 3.9 percent growth.
In contrast, lending to the household sector witnessed a sharp increase of 37.4 percent, indicating that consumer borrowing remained relatively resilient despite slower business credit demand.
Sector-wise, the construction sector recorded the highest growth in bank lending at 15.1 percent, followed by consumer goods with 13 percent, and transport, communication and public services at 12.5 percent. Credit to industrial production increased by 6.8 percent, while lending to the service sector rose 4 percent. Loans to the finance, insurance and fixed asset sector recorded only 0.6 percent growth.
Among various lending products, import-related trust receipt (TR) loans posted the strongest growth, surging 36.7 percent, reflecting higher import financing. Margin loans increased 15.8 percent, hire purchase loans rose 10.3 percent, real estate and housing loans expanded 6.3 percent, working capital loans grew 5.8 percent, and term loans increased 4.3 percent.
Meanwhile, deposits continued to outpace lending, further adding to excess liquidity in the banking system.
During the review period, deposits in BFIs increased by Rs 748.62 billion, taking total deposits to Rs 8.012 trillion. In the corresponding period of the previous fiscal year, deposits had grown by Rs 517.60 billion, or 8 percent.
The composition of deposits also shifted significantly. The share of savings deposits increased to 46.6 percent, up from 36.2 percent a year earlier, while the proportion of term deposits declined from 50.2 percent to 37.3 percent. Similarly, institutional deposits fell to 33.7 percent, compared to 35.5 percent in the previous year.
The widening gap between deposit growth and credit expansion underscores the persistent challenge facing Nepal’s banking sector. Although banks are flush with liquidity and lending rates have fallen to multi-year lows, weak investor confidence, slow economic recovery, and rising concerns over loan recovery continue to suppress private sector borrowing.
