Low demand deposits, High fixed savings: What Nepal’s banking data says about the economy

KATHMANDU: The composition of deposits in Nepal’s banking system reveals critical insights into financial stability, liquidity conditions, and the broader direction of the national economy.

Recent data on deposit structure show that Fixed Deposits account for 44.6% of total deposits, Saving Deposits 39.9%, Demand Deposits 6.4%, and Other Deposits 9.1%, illustrating a system heavily tilted toward longer-term savings rather than transactional liquidity.

The dominance of fixed deposits, which represent nearly half of the banking system’s total deposit base, indicates that depositors are prioritizing safety and interest income over short-term spending. Fixed deposits typically carry higher interest rates and lock-in periods, meaning funds remain in the system for longer durations.

For banks, this provides stable and predictable funding, enabling longer-term lending such as infrastructure finance, hydropower investment, corporate loans, and large project financing — all of which are essential for Nepal’s development trajectory.

However, the relatively low share of demand deposits (6.4%) — funds that can be withdrawn instantly and are mainly used for transactions — signals limited high-frequency economic activity.

In more consumption-driven or highly industrialized economies, demand deposits tend to be higher, reflecting rapid business turnover and stronger commercial activity.

Nepal’s smaller proportion suggests a slower transaction cycle, consistent with an economy where informal cash usage remains widespread and digital payment penetration is still evolving.

Saving deposits at 39.9% represent the middle ground. These accounts offer some interest while maintaining partial liquidity, and their significant share reflects household-level financial behavior.

Nepali households, facing economic uncertainty, inflationary pressures, and employment volatility, appear to be maintaining precautionary balances rather than aggressively spending or investing. This pattern is typical during periods when consumer confidence is moderate rather than strong.

The 9.1% under “other deposits” — which include institutional, margin, and specialized accounts — indicates limited diversification in deposit instruments.

This aligns with Nepal’s still-developing financial markets, where sophisticated savings products, wealth management instruments, and structured deposits are not yet widespread.

From a macroeconomic perspective, this deposit mix mirrors the structure of Nepal’s economy. A high share of fixed and savings deposits suggests capital accumulation is occurring, but it may not be translating efficiently into productive investment.

Banks currently hold excess liquidity at times, yet credit growth has not always kept pace. This indicates a structural mismatch between deposit mobilization and credit absorption capacity in the real sector.

The structure also reflects Nepal’s remittance-driven economy. A large portion of household savings originates from foreign employment income. Remittance recipients often park funds in savings or fixed accounts for security, contributing to the stability of deposits but not necessarily boosting immediate consumption or domestic production.

For monetary policy, such a structure provides Nepal Rastra Bank with a relatively stable base to manage interest rates and liquidity.

However, it also underscores the need to deepen financial intermediation, expand digital transactions, and stimulate productive sectors so that deposits move beyond passive savings into active economic circulation.

Overall, the current deposit structure portrays a risk-averse financial environment, strong household saving behavior, and a banking system with funding stability but facing the challenge of channeling those funds into dynamic economic growth.