Why Nepal’s banking boom is not fueling the economy
Summary
Nepal's banking sector in 2026 shows record profits and liquidity surplus while facing a rising non-performing loan ratio and slow economic growth, revealing structural issues in credit growth and asset quality amid stagnant real estate collateral.
Key Points
- Nepal’s commercial banks reported a 19.62% increase in net profit up to mid-June 2026, despite slow economic growth of 3.85% in the same period.
- Non-performing loans in Nepal’s banking sector have tripled over a decade, with the ratio increasing to 5.41% by mid-April 2026 and an expanding watchlist of potential bad loans.
- The banking sector faces a liquidity surplus with credit-to-deposit ratio falling to 72.91%, reflecting an economy saving more than it invests.
- Nepal Rastra Bank is implementing structural reforms including credit scoring and easing loan guarantee liabilities to revive credit growth and address rising bad loans.
