Nepal’s financial sector lending rises by Rs 221.84 billion as credit demand improves

KATHMANDU: Nepal’s banking and financial sector has witnessed a notable recovery in lending activity during the current fiscal year, reflecting a gradual revival of economic activity after years of slowdown caused by the COVID-19 pandemic and subsequent economic downturn.

According to data released by the Nepal Rastra Bank (NRB), credit extended by banks and financial institutions to the private sector increased by 4 percent, or Rs 221.84 billion, reaching Rs 5.719 trillion by the end of Magh 2082 BS (mid-February 2026 AD) in the current fiscal year 2082/83 BS (July 16, 2025 – July 15, 2026 AD).

The rise in credit demand indicates improving business confidence and expanding economic activities across sectors in Nepal’s economy.

Economic Activity Gradually Recovering

NRB officials say several factors contributed to the rise in lending and the gradual recovery of Nepal’s economy.

These include:

• Improved demand for bank credit from businesses and households
• Strong recovery in the external sector, including remittances and foreign exchange reserves
• Increased economic transactions during the House of Representatives elections

The central bank noted that the election period often stimulates spending and liquidity circulation in the economy, boosting short-term economic activity.

Nepal’s economy had remained sluggish for a prolonged period due to the impact of the global pandemic, weak domestic demand, tightening monetary policy, and a slowdown in sectors such as real estate and construction.

Although growth remains moderate, the latest data suggest the economy has begun to regain momentum.

Slower Growth Compared to Last Fiscal Year

Despite the improvement, the growth rate of private sector lending remains lower compared to the same period last fiscal year.

During the first seven months of the previous fiscal year 2081/82 BS, private sector lending had increased by 5.6 percent, or Rs 283.46 billion.

On a year-on-year basis, however, credit extended to the private sector has increased by 6.8 percent as of the end of Magh 2082.

Monthly Lending Trend Shows Improvement

NRB data also indicate that credit expansion accelerated slightly in recent months.

• By the end of Poush 2082 BS (mid-January 2026 AD), private sector lending had increased by 3.6 percent.
• By the end of Magh 2082 BS (mid-February 2026 AD), the growth rate rose to 4 percent.

This monthly improvement suggests that loan demand is gradually strengthening, particularly as businesses begin expanding operations and consumers increase spending.

Corporate Sector Continues to Dominate Borrowing

The data show that the majority of loans issued by banks and financial institutions continue to flow to the corporate sector.

By the end of Magh 2082:

• 62.6 percent of total private sector credit was extended to the non-financial corporate sector
• 37.4 percent went to individuals and household borrowers

In comparison, during the same period last fiscal year:

• Corporate sector borrowing accounted for 63.8 percent
• Household borrowing stood at 36.2 percent

The slight increase in household borrowing suggests growing consumer demand for housing, consumption loans, and small business financing.

Lending Growth Across Financial Institutions

Among different types of financial institutions, commercial banks recorded the strongest growth in lending.

During the first seven months of the current fiscal year:

• Commercial banks’ lending increased by 4.2 percent
• Development banks’ lending rose by 3 percent
• Finance companies’ lending grew by 1.8 percent

Commercial banks dominate Nepal’s financial system and account for the vast majority of total credit flows to the private sector.

Real Estate and Collateral Trends

NRB data also highlight the types of collateral backing bank loans.

As of the end of Magh 2082:

• 63.8 percent of total loans were backed by real estate collateral
• 15 percent were secured by current assets, including agricultural and non-agricultural goods

In the same period last fiscal year:

• Real estate-backed loans accounted for 65.1 percent
• Loans secured by current assets stood at 14.4 percent

The slight decline in real estate-backed lending reflects tighter regulatory oversight of property-linked credit after concerns about speculative investment in the sector.

Sector-Wise Lending Trends

NRB data reveal mixed trends in sectoral credit allocation during the first seven months of the fiscal year.

Sectors with increased lending:

• Consumer loans — up 10.6 percent
• Construction sector — up 8.7 percent
• Transport, communication, and public utilities — up 6.8 percent
• Industrial production — up 4.8 percent
• Service industries — up 1.1 percent

However, lending declined in several sectors:

• Agriculture sector — down 1.4 percent
• Finance, insurance, and real estate sector — down 1.9 percent

The decline in agriculture lending reflects cautious credit expansion in the sector, while tighter regulations and weak property demand contributed to lower lending in the real estate sector.

Loan Product Trends

The central bank also reported growth across several categories of bank lending products.

During the first seven months of the fiscal year:

• Trust receipt (import) loans increased by 16.2 percent
• Margin nature loans rose by 11 percent
• Hire purchase loans increased by 9.3 percent
• Term loans rose by 3.1 percent
• Real estate loans increased by 2.5 percent
• Cash credit loans grew by 2.1 percent
• Demand and other working capital loans rose by 1.8 percent

However, overdraft loans declined by 3.4 percent, indicating reduced short-term borrowing demand from businesses.

Implications for Nepal’s Economic Outlook

The rise in private sector credit suggests a gradual recovery in economic activity across Nepal’s banking system, which plays a central role in financing business investment, infrastructure development, and household consumption.

For policymakers at Nepal Rastra Bank, the trend will be closely monitored as they attempt to balance economic growth with financial stability.

Stronger credit growth is often seen as a leading indicator of expanding economic activity, particularly in developing economies where bank lending remains the primary source of investment financing.