KATHMANDU, Sept 23: The credit-to-deposit (CD) ratio of banks has dropped to 75.89 percent as deposits continue to increase on the back of a sharp rise in remittance inflows ahead of upcoming festivals, while loan disbursement has grown only marginally.
Nepal Rastra Bank (NRB) has mandated banks to maintain their CD ratio below a 90 percent ceiling. Although the current level is well within that limit, banks are operating far below the threshold because they have been unable to increase credit flow.
The latest NRB records show that total deposits in banks and financial institutions (BFIs) reached Rs 7.323 trillion. Of this, commercial banks held Rs 6.573 trillion.
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The central bank’s Current Macroeconomic and Financial Situation Report of Nepal, released last week, highlights strong remittance growth between mid-July and mid-August of Fiscal Year (FY) 2025/26. Remittance inflows surged 29.9 percent year-on-year to Rs 177.41 billion. In U.S. dollar terms, the growth was 25 percent, reaching $1.27 billion during the review period.
Despite this robust deposit growth, commercial banks increased their loan portfolios by only Rs 2 billion last week. According to NRB data, total lending currently stands at Rs 5.004 trillion.
Banks have struggled to expand credit for the past few years amid the ongoing economic slowdown. Their performance has weakened further in the past six months, with the CD ratio slipping from 79.29 percent in March to the current 75.89 percent.
To stimulate the economy, NRB adopted a more accommodative monetary policy for FY 2025/26. Consequently, the base interest rate of commercial banks has dropped to as low as 5.78 percent, while the average lending rate has fallen to 7.76 percent. However, these lower rates have not been enough to restore investor confidence or encourage new borrowing.
A senior banker, speaking on condition of anonymity, said banks are prioritizing recovery of loans over issuing new credit. “Citing rising non-performing loans and non-banking assets, banks have been focusing more on recovering their bad loans than on expanding lending,” the banker said.
Despite sluggish credit expansion, BFIs posted a combined net profit of Rs 9.37 billion during mid-July to mid-August of the current fiscal year, down from Rs 10.16 billion in the same period a year earlier.
Their non-banking assets increased by only Rs 10 million during the review month this year, compared to a rise of Rs 1.5 billion in the same period last year. As of now, banks hold non-banking assets totaling Rs 50.56 billion.
