Understanding CD Ratio as a Growth Indicator
The Credit-to-Deposit ratio is fundamentally a growth metric. Banks with high CD ratios are lending aggressively, deploying maximum deposits into income-generating loans. Banks with low CD ratios either lack quality borrowers, are being conservative, or are building a war chest for future expansion. For investors, the CD ratio signals whether a bank's earnings are at full potential or if there is untapped upside.
NRB guidelines allow commercial banks a CD ratio up to 90%, but the practical sweet spot is between 75% and 82% — enough lending to maximize income, with enough liquidity buffer for safety.
CD Ratio Ranking: All 19 Commercial Banks
| Rank | Bank | CD Ratio (%) | NIM (%) | EPS (Rs) | ROE (%) | Growth Stance |
|---|---|---|---|---|---|---|
| 1 | NMB | 85.09 | 3.80 | 17.10 | 10.34 | Aggressive |
| 2 | PCBL | 82.86 | 4.12 | 19.50 | 12.32 | Aggressive |
| 3 | CZBIL | 82.66 | 3.72 | 4.63 | 3.14 | Over-extended |
| 4 | EBL | 80.19 | 3.70 | 30.86 | 13.76 | Optimal |
| 5 | SANIMA | 79.42 | 3.56 | 20.48 | 12.40 | Optimal |
| 6 | SBL | 79.05 | 3.68 | 17.93 | 8.94 | Optimal |
| 7 | NABIL | 78.12 | 3.58 | 29.69 | 14.86 | Optimal |
| 8 | MBL | 77.99 | 3.66 | 16.73 | 10.78 | Optimal |
| 9 | LSL | 77.44 | 3.52 | -2.04 | -1.26 | Inefficient |
| 10 | KBL | 76.40 | 4.84 | 20.74 | 14.56 | Balanced |
| 11 | HBL | 74.89 | 3.82 | 11.45 | 6.66 | Conservative |
| 12 | GBIME | 71.55 | 3.56 | 17.06 | 9.88 | Conservative |
| 13 | PRVU | 70.91 | 4.24 | 8.62 | 5.92 | Under-deployed |
| 14 | NIMB | 69.63 | 3.72 | 9.45 | 4.96 | Under-deployed |
| 15 | SBI | 68.68 | 3.44 | 18.93 | 10.12 | Conservative |
| 16 | NBL | 67.48 | 3.72 | 17.76 | 6.76 | Conservative |
| 17 | NICA | 67.10 | 3.98 | 1.76 | 0.88 | Under-deployed |
| 18 | ADBL | 64.33 | 4.08 | 7.17 | 3.86 | Under-deployed |
| 19 | SCB | 59.77 | 4.72 | 27.35 | 13.20 | Ultra-conservative |
Growth Champions: High CD Ratio Banks
NMB — CD Ratio 85.09% (Highest)
NMB is the most aggressive lender in Nepal's banking sector. With 85.09% of deposits deployed as loans, it is approaching NRB's comfort threshold. The strategy is paying off with EPS of Rs 17.10 and ROE of 10.34%, but there is little room for further loan growth without proportional deposit growth. NIM of 3.80% is above average, suggesting quality lending.
PCBL — CD Ratio 82.86% (Growth Engine)
PCBL pairs its high CD ratio with the 4th-highest NIM (4.12%) and ROA of 1.32%. This is aggressive lending done right — high deployment plus high margins equals strong profitability. EPS of Rs 19.50 and ROE of 12.32% justify the aggressive stance. However, at 82.86%, further loan growth requires matching deposit growth.
EBL — CD Ratio 80.19% (Quality Growth)
EBL sits in the sweet spot with 80.19% CD ratio. Combined with the lowest NPL in the sector (0.68%), it demonstrates that aggressive lending need not mean reckless lending. The result: the sector's highest EPS at Rs 30.86. EBL grows by lending well, not just lending more.
Untapped Potential: Low CD Ratio Banks
Growth Potential: Banks with Room to Lend More
SCB (CD: 59.77%) — The most conservative lender deploys only 60% of deposits as loans. Despite this, it achieves the highest ROA (1.70%) through premium pricing. If SCB increased its CD ratio to even 70%, the incremental interest income could push EPS significantly higher. However, SCB's strategy is deliberate — it prioritizes quality and maintains the largest liquidity buffer in the sector.
ADBL (CD: 64.33%) — With 64.33% CD ratio and the 5th-highest NIM (4.08%), ADBL has significant untapped lending capacity. The challenge is its agricultural mandate, which limits the types of loans it can extend. If ADBL could deploy even 10% more deposits as quality loans at its current NIM, EPS could potentially double from the current Rs 7.17.
NICA (CD: 67.10%) — NICA has room to lend more but given its current ROA of 0.06%, more lending without fixing efficiency would likely just mean more losses. The low CD ratio is actually protecting NICA from greater damage.
The Ideal Growth Profile
The best banks combine moderate-to-high CD ratios with strong profitability metrics. These banks have found the optimal balance between growth and safety:
| Bank | CD Ratio (%) | NIM (%) | ROA (%) | EPS (Rs) | ROE (%) | Why Ideal |
|---|---|---|---|---|---|---|
| NABIL | 78.12 | 3.58 | 1.48 | 29.69 | 14.86 | Optimal CD + highest ROA conversion + room to grow |
| KBL | 76.40 | 4.84 | 1.22 | 20.74 | 14.56 | Highest NIM + room to deploy more + 2nd best ROE |
| SANIMA | 79.42 | 3.56 | 1.06 | 20.48 | 12.40 | Sweet-spot CD + strong EPS + above-average ROA |
| EBL | 80.19 | 3.70 | 1.22 | 30.86 | 13.76 | Highest EPS + lowest NPL + optimal CD zone |
Growth Risk: CD Ratio Above 82%
Liquidity Risk Warning
Banks with CD ratios above 82% face three key risks:
- Liquidity crunch — If depositors withdraw funds during market stress, these banks have minimal buffers. They may need to sell assets at a loss or borrow at premium rates.
- Regulatory pressure — NRB monitors CD ratios closely. Banks approaching 90% may face lending restrictions, limiting future growth.
- Quality deterioration — When banks push to lend more, they may compromise on credit quality, leading to higher NPLs in future quarters.
CZBIL (CD: 82.66%) is the prime example of growth without quality. Despite a high CD ratio, it delivers EPS of just Rs 4.63 and ROE of 3.14%. The aggressive lending is not translating into profits, suggesting poor loan quality or excessive costs.
NMB (CD: 85.09%) manages its high CD ratio better with EPS of Rs 17.10, but it has the least room for growth among all banks without matching deposit growth first.
Investment Recommendations
Growth-Based Investment Strategy
Ideal Growth Profile (Strong Buy):
- NABIL — CD 78.12% in the sweet spot, highest ROA conversion, room to grow. The complete package.
- KBL — CD 76.40% with the highest NIM. If it pushes CD to 80%, earnings could surge. Best growth upside at lowest valuation.
- EBL — CD 80.19% with sector-best EPS and lowest NPL. Quality growth at its finest.
- SANIMA — CD 79.42% with balanced growth and profitability. Under-valued growth story.
Growth Potential (Buy on Dips):
- SCB — CD 59.77% means massive untapped potential. Any increase in lending aggression will boost already-strong earnings.
- GBIME — CD 71.55% with room to deploy more. EPS of Rs 17.06 could grow if lending increases.
- NBL — CD 67.48% below book value. Growth potential + value discount = double upside.
Growth Risk (Caution/Avoid):
- CZBIL — CD 82.66% but EPS only Rs 4.63. Growth without profits is value destruction.
- NICA — Low CD (67.10%) but cannot convert existing loans into profits. More loans will not fix efficiency.
- LSL — CD 77.44% with negative EPS. The bank is losing money on its current loan book.