Rising deposit and loan accounts in BFIs signal shifts in Nepal’s banking and economic activity

KATHMANDU: The steady rise in the number of deposit and loan accounts held at banks and financial institutions (BFIs) in Nepal is emerging as an important indicator of changing economic behavior, financial inclusion, and credit demand across the country.

Data published periodically by Nepal Rastra Bank (NRB) show that both deposit accounts and loan accounts have been increasing year after year. At first glance, this trend appears positive. But for Nepal’s economy, the relationship between deposits and loans carries deeper meaning.

In simple terms, deposit accounts show how many individuals and institutions are saving money in the banking system. Loan accounts show how many borrowers are taking credit from banks. Together, they reflect public confidence in banks, access to financial services, and the strength of economic activity.

How the deposit system works in Nepal

Banks collect deposits from households, businesses, and institutions. These deposits form the primary source of funds for lending. In Nepal, fixed deposits, savings accounts, and current accounts dominate the deposit mix.

An increase in deposit accounts usually means more people are entering the formal financial system. It also suggests rising income flows, remittances, or precautionary savings during uncertain times.

In Nepal’s case, remittance inflows play a critical role. A large share of deposits comes from migrant workers’ earnings sent from abroad. When remittances remain strong, deposit volumes increase even if domestic economic activity is weak.

However, more deposits do not automatically translate into more lending.

Understanding loan accounts and credit demand

Loan accounts reflect demand for credit. This includes loans for businesses, agriculture, housing, vehicles, education, and personal consumption.

When loan accounts increase alongside deposits, it generally signals economic expansion. Businesses are investing. Households are spending. Entrepreneurs are taking risks. This is the ideal scenario for growth.

But Nepal has recently seen a more complex pattern. Deposit accounts are rising faster than loan accounts. In some periods, loan growth has remained weak despite excess liquidity in banks.

This imbalance highlights subdued credit demand rather than a lack of lending capacity.

What rising deposit and loan accounts really mean

An increase in both deposit and loan accounts signals deeper financial penetration. More citizens are connected to banks. Digital banking, branch expansion, and policy-driven inclusion have helped bring more people into the system.

For deposits, this means trust in banks remains intact. People prefer keeping money in regulated institutions rather than informal channels.

For loans, rising account numbers do not always mean large credit expansion. In Nepal, many new loan accounts are small-ticket loans. Retail lending has grown faster than productive business lending.

This reflects caution in the private sector.

Signals to the Nepali economy

When deposits rise sharply but loan demand remains weak, it sends mixed signals.

On one hand, it shows financial stability. Banks are liquid. There is no funding stress. Interest rates tend to fall under such conditions.

On the other hand, weak loan demand points to slow economic momentum. Businesses hesitate to expand. Investors delay decisions. Construction, manufacturing, and trade remain cautious.

This has been visible in Nepal after the pandemic. Credit growth slowed even as deposits surged. Banks parked excess funds in government securities and NRB instruments instead of lending to the private sector.

Role of interest rates and confidence

Interest rates influence both deposits and loans. When deposit rates fall, savers earn less. When lending rates decline, borrowing becomes cheaper.

In Nepal, lending rates have gradually come down. Yet credit demand has not rebounded strongly. This indicates that confidence matters more than cost alone.

Political uncertainty, policy inconsistency, and weak demand in the real economy have discouraged borrowing, even when banks are willing to lend.

For policymakers, the gap between deposits and loans is a warning sign. It suggests that monetary easing alone cannot revive growth.

Structural reforms are needed. These include improving the business climate, ensuring policy stability, accelerating capital spending, and supporting productive sectors such as agriculture, manufacturing, and tourism.

For NRB, monitoring deposit and loan accounts helps assess whether liquidity is flowing into the real economy or remaining trapped in the financial system.

Rising numbers of deposit and loan accounts show that Nepal’s banking network is expanding. Financial access is improving. Trust in banks remains strong.

But unless deposits are converted into productive loans, economic growth will remain modest.

The real signal lies not just in the number of accounts, but in how actively money moves from savers to productive users. For Nepal, bridging this gap remains one of the biggest challenges for sustainable economic recovery and long-term growth.