Banking Federation Welcomes Mid-Term Monetary Policy Review, Sees Stability Focus but Flags Structural Risks

The Confederation of Banks and Financial Institutions Nepal (CBFIN) has welcomed the Nepal Rastra Bank’s mid-term review of the Monetary Policy for fiscal year 2082/83, describing the policy direction as cautious, measurable, and stability-oriented at a time when the domestic financial system continues to navigate post-slowdown recovery pressures. The federation believes the central bank has attempted to balance economic support with financial discipline rather than pursuing aggressive policy shifts.

According to CBFIN, the decision to keep key policy rates unchanged reflects alignment with improving trends seen in emerging global economies, where central banks are gradually shifting from tightening cycles toward stabilization. By avoiding sudden monetary easing or tightening, the regulator appears to be prioritizing predictability in financial markets—an approach banking leaders say is necessary to restore investor confidence and maintain macroeconomic stability.

The federation particularly emphasized structural adjustments introduced through the review. Measures encouraging sector-based credit expansion, increased lending to micro, cottage, and small enterprises, and adoption of cash-flow-based assessment for working capital loans are expected to improve credit accessibility for productive sectors. Analysts interpret this as a shift away from collateral-heavy lending practices toward business performance evaluation, which could gradually widen financing access for small and medium enterprises.

CBFIN also views targeted loan restructuring facilities and revisions to foreign exchange risk limits as practical steps to ease pressure on borrowers still affected by economic slowdown. Greater flexibility in blacklist provisions, according to banking officials, may help revive borrowers who faced temporary repayment stress rather than fundamental insolvency. These measures, if implemented carefully, could prevent further deterioration in asset quality while supporting credit recovery.

From a broader economic perspective, the federation expects the policy adjustments to stimulate investment in productive, export-oriented, and employment-generating sectors. Increased lending in such areas could help reactivate economic momentum that slowed during recent periods of tight liquidity and weak private investment. However, economists note that credit expansion alone may not be sufficient unless accompanied by stronger demand conditions and improved business confidence.

The monetary policy review’s emphasis on digital infrastructure investment and expansion of electronic payment systems has also been positively received by the banking sector. CBFIN believes these initiatives could accelerate modernization of Nepal’s financial ecosystem, reduce transaction costs, and strengthen competitiveness as digital finance increasingly becomes central to regional banking systems. The shift toward digitalization is seen not only as a technological upgrade but also as a tool for improving transparency and financial inclusion.

CBFIN Senior Vice President and spokesperson Rajesh Upadhyay stated that maintaining a balance between short-term liquidity management and long-term structural reforms will be crucial for sustaining financial stability. His remarks suggest that while immediate liquidity pressures have somewhat eased, deeper institutional reforms remain necessary to ensure durable economic recovery.

Despite its overall positive assessment, the federation also highlighted persistent vulnerabilities within the banking system. Rising non-performing loans, growing volumes of non-banking assets, and ongoing liquidity management challenges continue to pose risks to financial institutions. CBFIN expressed confidence that regulators would take more decisive measures through continued dialogue with stakeholders to address these structural concerns.

The response from the banking sector indicates cautious optimism rather than outright celebration. While the mid-term review is viewed as supportive of stability and gradual recovery, the effectiveness of the policy will ultimately depend on how credit flows translate into real economic activity. Without improvements in investment climate, demand growth, and financial discipline, policy adjustments alone may have limited impact.

Overall, the federation’s reaction highlights a broader transition phase in Nepal’s economy—moving from crisis management toward stabilization and structural correction. The coming months will likely test whether monetary policy adjustments can successfully revive lending confidence while simultaneously safeguarding financial stability in an environment still marked by uncertainty.