Credit picks up, but Nepal’s banks are awash with cash
Summary
Credit disbursement by Nepali banks picked up sharply in the first quarter, but the financial system still holds a large surplus of loanable funds as deposits outpace lending. Bankers say higher import costs, a stronger US dollar and festive-season borrowing are driving much of the credit growth rather than a broad economic recovery.
Key Points
- Banks and financial institutions extended an additional Rs133 billion in credit in the first quarter, more than four times the increase seen in the same period last year.
- Despite the lending pickup, Nepal’s banking system still has about Rs1.56 trillion in surplus loanable funds because deposits are growing faster than credit.
- Bankers say import financing, SMEs, hydropower, real estate and share-backed lending are contributing to credit growth, but the expansion is still being driven largely by trade financing and festive demand.
- Strong remittance inflows continue to boost deposits, adding to excess liquidity in the banking system.
