Bankers in Nepal are optimistic that lending activity will increase following the formation of a new government, even as the banking sector struggles with excess liquidity during an economic slowdown.
According to data from the Nepal Bankers’ Association, loan disbursement declined further last month, partly due to the general elections held on March 5. Commercial banks issued only Rs 15.73 billion in new loans between mid-February and mid-March, raising total lending to Rs 5.172 trillion from Rs 5.157 trillion.
Santosh Koirala said that investors had taken a cautious “wait-and-see” approach, delaying new borrowing and investment decisions.
“Many investors are now hopeful about political stability under the new government, which is likely to boost confidence in the coming days,” Koirala said at a programme in Kathmandu.
Meanwhile, deposit collection has surged. Commercial banks collected Rs 50.07 billion in deposits during the same period—more than three times the amount of new lending. In the first eight months of the fiscal year 2025/26, deposits rose by Rs 473.76 billion to reach Rs 7.004 trillion.
This growing gap between deposits and lending has pushed the credit-to-deposit ratio down to 73.73 percent, well below the 90 percent ceiling set by the Nepal Rastra Bank. Bankers say this indicates significant room for credit expansion—up to Rs 1.139 trillion.
Former banker Bhuvan Dahal emphasized that political stability is more important than low interest rates when it comes to encouraging investment.
“Lower interest rates alone do not guarantee increased investment. A stable business environment that ensures better returns is more critical,” he noted.
In a recent policy shift, the central bank has eased directed lending requirements. Commercial banks are now required to allocate at least 10 percent of their total loans to the agricultural sector by mid-January 2027, down from the previous 12 percent.
Additionally, the list of priority sectors has been expanded to include tourism, information technology, communication technology-based industries, and export-oriented businesses that use domestic raw materials.
Koirala added that these revised policies are expected to encourage banks to develop new loan products, supported by more flexible regulations from the central bank.
