Slowdown in Loan Growth and Increased Deposits Reflect Weak Demand in Nepal's Economy

As of mid-January 2026, the private sector loan disbursed by banks and financial institutions in Nepal has increased by just 4%, amounting to NPR 57.19 trillion. This growth is significantly slower compared to the 5.6% increase observed in the previous year. This subdued growth signals weak demand in the economy, particularly in the investment and production sectors. The slower loan growth suggests that there has been insufficient demand for credit, which could be a sign of an economic slowdown, as investment activity appears to be lacking.

In contrast, the banking system has experienced a sharp rise in deposits. By mid-January, total deposits increased by 6%, reaching NPR 76.97 trillion. On a yearly basis, deposits have increased by 14.9%, indicating that banks are holding sufficient liquidity. However, the challenge lies in transforming this liquidity into more loans, as it has yet to be channeled into the economy through lending.

According to Nepal Rastra Bank, the growth in loans this year is much slower compared to last year. Year-on-year, the increase in private sector loans has been 6.8%, which highlights the weaker performance of the credit market.

Sector-Specific Loan Trends

When analyzed by sector, consumption loans saw the highest growth, increasing by 10.6%. The construction sector followed with an 8.7% growth, and the transportation, communication, and public services sectors experienced a 6.8% increase in loans. However, the industrial production sector saw a slower growth rate of just 4.8%, while the service industry saw a modest 1.1% increase in loans.

One of the concerning trends is the decline in loans for the agriculture sector, which decreased by 1.4%. Similarly, loans for the finance, insurance, and real estate sectors also saw a drop of 1.9%, signaling a weakening in productive investment.

Real Estate and Trust Receipt Loans Dominating the Market

The real estate sector continues to be a significant part of Nepal’s loan market, with 63.8% of loans secured by property. Although this is a slight decrease from the previous year's 65.1%, the dependency on real estate as collateral remains high. This reliance on property-backed loans suggests that the banking system is still heavily invested in real estate, rather than diversifying into other sectors.

In terms of loan types, trust receipt (import) loans saw a 16.2% increase, followed by margin loans at 11% and hire purchase loans at 9.3%. These increases indicate a rise in demand for consumer goods and vehicle purchases, with the public showing more interest in acquiring goods through financing options. On the other hand, overdraft loans saw a decrease of 3.4%, which suggests a reduction in working capital financing for businesses.

Breakdown of Loan Disbursement by Sector

By the end of January, 62.6% of the loans were directed towards non-financial institutional sectors, with 37.4% going to individual and household sectors. This is a slight shift from last year, where the distribution was 63.8% to non-financial institutions and 36.2% to individuals and households.

Banks and financial institutions from various categories have contributed to the loan growth. Commercial banks saw a 4.2% increase in loans, development banks increased their loan disbursements by 3%, and finance companies had a 1.8% increase.

Deposits Grow While Long-Term Fixed Deposits Decrease

The significant increase in deposits within the banking system, which grew by 6% (NPR 4.33 trillion), points to an overall increase in public savings. The annual growth rate in deposits is 14.9%, signaling a healthy inflow of funds into the banking sector.

Looking at the deposit structure, 6.5% of the total deposits were current deposits, while 42.8% were savings deposits and 41.6% were fixed-term deposits. Compared to the previous year, the proportion of fixed-term deposits has decreased, likely due to lower interest rates, which have reduced the attractiveness of long-term savings accounts.

Institutional deposits accounted for 34.3% of total deposits, showing a small decline from 35.3% in the previous year, indicating a slight shift in deposit sources.

Conclusion

The data paints a mixed picture of Nepal's financial sector: while deposits are growing steadily, the slowdown in loan disbursement points to weak economic demand, particularly in the industrial and agricultural sectors. The banking system remains reliant on the real estate sector for a large portion of its collateral-backed loans, and the trend in financing consumer goods and vehicles has picked up pace. To stimulate growth, there is a need for stronger investment in productive sectors like agriculture and industry, and more effective channels to convert liquidity into productive loans.