Finance Minister signals opening of Neo Bank licenses to boost Nepal’s financial sector competitiveness

KATHMANDU: Finance Minister Swarnim Wagle has indicated that Nepal may soon move toward issuing digital banking licenses, emphasizing the need for technology-driven financial institutions to revitalize the country’s evolving banking sector.

Unveiling the government’s economic white paper titled “Nepal’s Current Economic Status 2083”, the minister highlighted that the number of traditional banks and financial institutions has significantly declined due to mergers and acquisitions, making room for a new generation of digital-first financial services.

Push for Digital Banking in Nepal

According to the white paper, Nepal has not issued licenses for new commercial banks, development banks, or finance companies for over a decade. The government now sees digital banks as a strategic solution to enhance competition, efficiency, and financial innovation.

“Over the past decade, licensing for new banks and financial institutions has remained halted. To make the financial sector more dynamic and competitive, technology-driven institutions like digital banks are essential,” the report states.

Decline in Number of Financial Institutions

Data shows that the total number of licensed banks and financial institutions (including microfinance institutions) has dropped from 178 in mid-July 2016 (2073 Asar) to 106 by Falgun 2082 (early 2026).

This decline is largely attributed to consolidation policies encouraged by Nepal Rastra Bank, aimed at strengthening the financial system through mergers and acquisitions.

Rising Non-Performing Loans a Concern

The white paper also flags a growing risk in the banking system, noting an increase in the non-performing loan (NPL) ratio.

• NPL stood at 3.33% in FY 2072/73
• Declined slightly to 3.02% in FY 2080/81
• Rose sharply to 5.42% by Magh-end 2082

The report warns that although the average NPL level remains within acceptable thresholds, the upward trend could pose a serious financial stability risk if not addressed promptly. Development banks and finance companies are reported to have higher NPL ratios compared to commercial banks.

Financial Access Improves, Credit Access Still Limited

Despite structural challenges, Nepal has made notable progress in financial inclusion. Expansion of bank branches, digital banking services, and new financial service providers has improved access and literacy.

According to Nepal Rastra Bank data:

• Financial literacy reached 57.9% in 2022
• Total deposit accounts surged 3.4 times over the past decade
• Accounts reached 62.06 million (6.2 crore) by Falgun 2082

However, the report highlights that access to credit remains relatively low, indicating a gap between financial inclusion and actual financial utilization.

Microfinance Sector Under Pressure

The white paper also raises concerns about rising defaults in the microfinance sector, partly driven by social tendencies encouraging borrowers to avoid repayments.

It emphasizes the need to reposition microfinance institutions toward social banking, especially in areas still facing high poverty levels, to support poverty reduction and women’s empowerment.

The signal to introduce digital bank licenses marks a potential turning point in Nepal’s financial sector reform. Analysts believe that if implemented effectively, digital banks could accelerate financial innovation, expand credit access, and integrate Nepal more deeply into the global digital economy.

At the same time, policymakers face the dual challenge of managing rising credit risks while ensuring that technological transformation strengthens, rather than destabilizes, the financial system.