State-Owned Banks Lag in Credit Expansion as System-Wide Liquidity Piles Up

Kathmandu — Nepal’s banking sector is currently witnessing a massive accumulation of liquidity, with state-invested commercial banks showing significant reluctance to expand their credit portfolios. By mid-October (the end of Ashoj), the average Credit-to-Deposit (CD) ratio across all 20 commercial banks plummeted to 70.25%, revealing a glaring gap between deposit collection and actual loan disbursement in the economy.

System-wide financial data paints a picture of a stagnant lending environment amidst overflowing vaults. By mid-October, the total deposit base of the 20 commercial banks swelled to an imposing Rs 7,749.86 billion, while total credit flow lagged far behind at Rs 5,435.40 billion. Out of the 20 banks, 12 have managed to keep their CD ratios above 70%, while eight have slipped below this threshold, heavily dragging down the industry average.

Government-backed institutions are the primary drivers of this downward pull. Rastriya Banijya Bank (RBB), Nepal Bank, and Agricultural Development Bank (ADBL) are all operating with highly conservative CD ratios well below the 70% mark. RBB presents the most striking case of under-lending; despite commanding a colossal deposit base of Rs 716.93 billion, its total loan portfolio stands at just Rs 349.44 billion, resulting in a sluggish CD ratio of 48.89%. Similarly, Nepal Bank and ADBL recorded CD ratios of 62.16% and 67.56% respectively, underscoring a highly defensive operational strategy among state entities.

Former banker Parshuram Kunwar Chhetri interprets this trend as a reflection of both institutional risk aversion and a depressed macroeconomic environment. According to Chhetri, the low CD ratios indicate that banks are exercising extreme caution to avoid bad loans in a volatile market. Furthermore, even when banks are willing to lend, there is a genuine lack of robust credit demand from the private sector. However, Chhetri notes that a low CD ratio isn't inherently detrimental to a bank's financial health; if an institution holds a high volume of low-cost current account deposits, it can manage the situation without facing severe cost-of-fund pressures.

In stark contrast to the hesitant approach of government banks, select private-sector institutions continue to push credit aggressively. Prime Commercial Bank currently leads the industry with the highest CD ratio of 86.41%, having mobilized Rs 250.90 billion in loans against Rs 279.48 billion in deposits. NMB Bank and Nabil Bank follow closely with aggressive ratios of 84.71% and 80.01% respectively.

When it comes to sheer volume, Global IME Bank has emerged as the absolute heavyweight. The bank stands first among the 20 commercial banks in terms of credit flow, disbursing a massive Rs 507.81 billion in loans from a deposit pool of Rs 716.39 billion, maintaining a balanced CD ratio of 70.11%. Other notable banks maintaining a healthy lending pace include Sanima (78.65%), Machhapuchhre (77.93%), Citizens (75.45%), Everest (75.43%), and Lakshmi Sunrise (75.09%).

Conversely, major private players like NIC Asia (61.09%), Nepal Investment Mega (66.73%), Prabhu (65.07%), and Nepal SBI (64.54%) have opted to join the conservative camp, drastically slowing down their lending pace. Most notably, Standard Chartered Bank—a foreign joint-venture institution—remains the most risk-averse bank in the country, recording the absolute lowest CD ratio at a mere 46.24%.

This systemic hesitation to lend suggests that while banks are flush with investable funds, true economic revival will require more than just liquidity; it hinges entirely on restoring market confidence and stimulating the private sector's appetite for credit.