The NEPSE Journal
Market commentary, data deep-dives, and trading notes from the NEPSE Trading desk.
Nepal’s banks report a Core Capital Ratio of 10%, meeting regulatory standards but leaving limited room for shocks. Rising NPLs, high credit exposure, and profitability pressures could strain this cushion, making it more of a compliance level than a true safeguard. Strengthening core capital will be critical for long-term resilience.
Nepal’s banking sector maintains a CAR of 13.19%, above the regulatory minimum of 11%, signaling compliance and resilience. However, rising NPLs, high funding costs, and rapid credit growth suggest that capital buffers may be tested in the future. The sector is meeting norms, but ensuring genuine resilience will require stronger core capital and prudent risk management.
Nepal’s banks hold 15% of deposits in government securities, providing a secure safety net against rising credit risks while also supporting state financing. This strengthens liquidity and stability but could constrain private-sector credit if the balance tilts too far toward government lending.
Nepal’s banking sector holds cash and bank balances equal to 7.8% of deposits—enough to provide a short-term cushion but also signaling potential liquidity stress if deposit growth slows or withdrawals rise. While it reflects prudent management, the balance between maintaining liquidity and pushing credit expansion remains delicate.
Nepal’s NPL ratio of 4.62% highlights a growing concern over credit quality, with finance companies showing severe stress at over 11%. While commercial banks remain relatively stable, development banks and finance companies are facing mounting risks. The challenge for Nepal’s banking sector will be to balance credit growth with stronger risk management, ensuring that rising defaults do not undermine financial stability.
Savings deposits, at 37% of total deposits, continue to serve as a vital low-cost funding base for Nepal’s banks, ensuring liquidity and financial inclusion. Yet, the declining share compared to fixed deposits signals shifting investor behavior toward higher returns, raising questions about long-term confidence in savings accounts and creating challenges for banks in managing costs and liquidity.
With fixed deposits making up 48% of total deposits, Nepal’s banks enjoy stable funding but face higher interest costs and reduced liquidity flexibility. This trend shows public confidence in banks and a preference for guaranteed returns, but it also puts pressure on profitability and risk management.
Nepal’s CD ratio of 76% demonstrates that banks are striking a cautious balance between deposit mobilization and lending. While commercial banks remain conservative, smaller institutions are pushing closer to riskier levels. Overall, the ratio reflects adequate liquidity and prudent financial management, though risks remain if deposit growth slows or loan defaults increase.
Nepal’s Credit-to-GDP ratio of 91% demonstrates robust financial deepening, placing banks at the center of economic growth. However, elevated NPLs, aggressive lending by smaller institutions, and reliance on expensive fixed deposits introduce systemic risks. The challenge ahead lies in balancing growth-oriented credit expansion with prudent risk management to avoid a credit-fueled bubble.
