Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal’s banking sector is facing a paradox of ample liquidity but stagnant loan growth, with the average credit-to-deposit (CD) ratio at a comfortable 78.45%, well below the Nepal Rastra Bank’s (NRB) 90% ceiling. Despite approximately NPR 800 billion in investable funds, banks have struggled to boost lending, leading to historically low interest rates: 4.37% on deposits and 8.11% on loans, the lowest since weighted average calculations began.
The NRB has absorbed NPR 400 billion in excess liquidity through fixed deposit facilities and liquidity absorption tools to keep interbank rates above 3%. However, subdued economic activity has dampened private sector demand, hampering loan growth and increasing recovery challenges. Non-performing loans (NPLs) among commercial banks have surged past 5% by the end of the last quarter, with some banks nearing 7%, pushing primary capital adequacy ratios below 8% in several cases.
Banks like Himalayan Bank, Kumari Bank, Nepal Investment Mega Bank, NIC Asia Bank, Rastriya Banijya Bank, and Prabhu Bank are prioritizing loan recovery over new lending due to capital pressures. Rastriya Banijya Bank, with the lowest CD ratio at 64.30%, faces supplementary capital constraints despite issuing NPR 2.5 billion in debentures.
Prabhu Bank, with a CD ratio of 71.92%, has halted lending to focus on recovery due to rising distributable losses. Nepal Bank Limited and Standard Chartered Bank maintain CD ratios of 72.71% and 72.90%, respectively, with the latter’s conservative lending keeping its capital ratio robust.
Other banks, including Nepal Investment Mega Bank (76.76%), Nepal SBI Bank (75.49%), and Agricultural Development Bank (77.53%), face pressures from rising NPLs and loan loss provisions. Global IME Bank (78.99%) and Laxmi Sunrise Bank (81.15%) are also focused on recovery, while banks like Everest Bank (84.07%),
Machhapuchhre Bank (84.76%), and NMB Bank (83.12%) have increased lending due to stronger capital positions. Capital shortages are a growing concern, with some banks unable to lend due to inadequate primary capital.
The NRB’s proposal to allow preference shares to ease capital pressures is stalled at the Securities Board of Nepal (SEBON), which insists legal amendments are needed. Banks are now lobbying for rights share issuance, a demand supported by the Nepal Bankers’ Association.
President Santosh Koirala emphasized, “If recovery improves, capital issues could resolve naturally, but significant NPL reductions are unlikely this year. Rights shares must be allowed in the upcoming monetary policy to enable lending.”
The NRB’s decision on rights shares could provide critical relief to banks struggling with capital shortages, ensuring they can support Nepal’s economy amidst rising bad loans and economic slowdown.
Your email address will not be published. Required fields are marked *
Comment *
Name *
Email *
Website
Save my name, email, and website in this browser for the next time I comment.
