Too Much Money, Too Little Credit: Nepal's Liquidity Puzzle and What It Means for NEPSE
Summary
Nepal’s banking system is flush with deposits, but weak credit demand is keeping lending growth subdued despite low interest rates. The liquidity overhang could support NEPSE, yet lasting gains still depend on earnings growth, investment confidence and broader economic activity.
Key Points
- Deposits in Nepal’s banking system have climbed to about Rs. 8.37 trillion, while lending stands at around Rs. 6.02 trillion, leaving the credit-to-deposit ratio comfortable.
- Private-sector credit grew only 6.6% in FY 2025/26 even as broad money expanded 13.4%, highlighting weak borrowing demand.
- Remittance inflows are fueling deposit growth, but subdued economic activity and low investment appetite are slowing credit absorption.
- Excess liquidity may help equities, but the article argues that NEPSE needs earnings growth, business confidence and stronger economic momentum to sustain a bull market.
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