The credit-deposit (CD) ratio of Nepal’s commercial banks has declined significantly, reflecting the banking sector’s growing difficulty in expanding lending despite ample liquidity and falling interest rates.
According to data from 20 commercial banks, the average CD ratio dropped by 3.77 percentage points over the first 11 months of the current fiscal year. As of mid-June 2026, the average ratio stood at 72.42 percent, down from 76.18 percent in mid-July 2025 and well below the 90 percent regulatory ceiling set by Nepal Rastra Bank (NRB).
Deposits Growing Faster Than Loans
NRB records show that commercial banks mobilized Rs 723 billion in additional deposits during the review period, but issued only Rs 288 billion in new loans. The imbalance has led to a substantial buildup of excess loanable funds within the banking system.
By mid-June, total deposits of commercial banks had reached Rs 7.253 trillion, while total outstanding loans stood at Rs 5.263 trillion.
Standard Chartered Records Lowest CD Ratio
Among individual banks, Standard Chartered Bank Nepal reported the lowest CD ratio at 48.30 percent, following a decline of 21.14 percentage points during the review period.
Other notable figures include:
- Rastriya Banijya Bank: 55.78 percent
- Seven commercial banks: CD ratio between 60 and 70 percent
- Six banks: CD ratio between 70 and 80 percent
- NMB Bank: Highest CD ratio at 84.13 percent
Prime Commercial Bank, Sanima Bank, Everest Bank, and Nabil Bank also maintained CD ratios above 80 percent.
Falling Interest Rates Fail to Stimulate Lending
As liquidity has increased, banks have continuously lowered deposit and lending rates over the past three years.
Currently:
- Average deposit interest rate: 3.35 percent
- Average base lending rate: 6.73 percent
Despite these historically low rates, credit demand has remained weak.
A banker, speaking anonymously, said the excessive accumulation of deposits has created challenges for banks.
“The rising volume of deposits has increased the cost of funds,” the banker said.
Excess Liquidity Parked at Central Bank
Unable to deploy funds through lending, banks and financial institutions have increasingly parked surplus liquidity with the central bank under the Standing Deposit Facility (SDF).
According to NRB, it currently holds Rs 999.35 billion from banks and financial institutions under the scheme.
Sign of Broader Economic Slowdown
Analysts say the declining CD ratio reflects sluggish economic activity and subdued investment sentiment. Although liquidity is abundant and borrowing costs have fallen sharply, businesses and individuals remain reluctant to take on new debt amid weak domestic demand and uncertainty in the broader economy.
The continued rise in deposits alongside slow credit growth has left banks with excess liquidity, underscoring the challenge of reviving lending and stimulating economic activity.
