Nepal’s Commercial Banks Struggle to Meet Prescribed Sector Lending Targets

Nepal's banking sector is under the microscope again as new data reveals the performance of commercial banks against the mandatory lending requirements in agriculture, energy, and micro, cottage, and small and medium enterprises (MCSME) sectors. Regulatory guidelines demand banks to allocate at least 11% of their loan portfolio to agriculture, 6.5% to energy, and 11% to MCSME. However, while some banks have showcased robust performance, others are clearly lagging behind.

Among all banks, Agriculture Development Bank stands out dramatically with a massive 58.09% of its loan portfolio dedicated to the prescribed sectors. The bank particularly excels in agricultural lending, allocating 29.69% — nearly triple the minimum requirement. Similarly, Kumari Bank Limited also shines by allocating 41.93% overall, with strong exposure in both energy (14.05%) and MCSME (16.76%).

In contrast, Standard Chartered Bank Nepal Limited posted the lowest total prescribed sector lending at just 23.31%, driven by a weak performance in the MCSME segment at only 4%, far below the 11% regulatory minimum. Himalayan Bank Limited and Nabil Bank Limited also hover near the bottom with 28.52% and 30.28%respectively, signaling a cautious stance toward aggressive sector lending.

Interestingly, NIC Asia Bank Limited showed an imbalanced focus — barely scratching the minimum agriculture target (11.14%) and severely underperforming in the energy sector (1.03%) but compensating with a strong MCSME exposure (16.95%). This uneven distribution raises concerns about banks "managing numbers" rather than supporting the broader goal of sectoral development.

Citizens Bank International Limited and Nepal SBI Bank Limited presented balanced portfolios with 34.86% and 34.65% lending respectively, both exceeding the total prescribed requirements while maintaining relatively stable distribution across all three sectors.

Energy sector lending, in particular, remains a problem area for many banks. Despite Nepal’s critical need for energy infrastructure development, only a few banks like Kumari Bank (14.05%) and NMB Bank (13.50%) have lent aggressively. Several large players have barely crossed the 6.5% threshold, indicating a lack of enthusiasm toward energy financing.

The overall trend suggests that while many banks are technically meeting their sector-wise obligations, few are actually embracing the spirit behind the regulation — namely, supporting real economic sectors that can drive sustainable growth. Moreover, banks with strong agricultural lending seem to be the only ones significantly outperforming, while energy and MSME sectors are still receiving a more cautious allocation.

In conclusion, while regulatory compliance on paper might appear satisfactory for most banks, deeper analysis exposes uneven sectoral prioritization. The Nepal Rastra Bank may need to tighten monitoring and introduce sector-specific penalties or incentives to ensure meaningful support for agriculture, energy, and MSME growth — the backbone of Nepal’s economy.