Nepal’s Banking Sector Sees Steady Growth in Deposits and Credit — Mid-May 2025 Update

The monthly banking and financial statistics up to Mid-May 2025 reveal a continued upward trend in both deposit accumulation and credit disbursement by Nepal’s banking institutions. This reflects improving public confidence, economic liquidity, and enhanced lending activities in the financial sector.

Deposit Trends: Strong Upward Momentum

From Rs. 6,261 billion in Mid-June 2024 to Rs. 6,885 billion by Mid-May 2025, total deposits in the banking system increased by Rs. 624 billion, marking an approximate 10% annual growth. Key growth spurts occurred in:

• Mid-July 2024, when deposits jumped by Rs. 235 billion, suggesting post-fiscal year accumulation.

• Mid-October 2024, another significant increase of Rs. 134 billion, possibly tied to Dashain-Tihar inflows.

• Mid-April 2025 to Mid-May 2025, deposits surged from Rs. 6,861 to Rs. 6,885 billion, indicating year-end fiscal inflows or remittance boosts.

This rise demonstrates increased domestic savings and trust in the banking sector. It may also be linked to higher remittance inflows and restrained consumption amid moderate inflation.

Credit Growth: Slow but Steady Climb

Total credit disbursed rose from Rs. 5,136 billion in Mid-June 2024 to Rs. 5,529 billion in Mid-May 2025, an increase of Rs. 393 billion, or approximately 7.65% over the 11-month period.

Unlike deposits, credit growth was gradual, reflecting a cautious lending environment. Key observations include:

• The largest monthly jump occurred between Mid-Dec 2024 and Mid-Jan 2025, with credit increasing by Rs. 104 billion — possibly due to new-year business expansions or relaxed monetary policies.

• A slight decline was seen in Mid-May 2025 compared to Mid-April 2025 (down Rs. 8 billion), indicating seasonal loan repayments or tighter lending.

The moderate pace signals cautious risk management by banks amid uncertainties or subdued private sector demand.

Credit-Deposit Ratio (CD Ratio) Outlook

The CD ratio — a key measure of how much of the deposits are being converted into loans — has remained conservative. Using the latest data:

• CD Ratio (Mid-May 2025) = 5529 / 6885 ≈ 80.3%

• CD Ratio (Mid-June 2024) = 5136 / 6261 ≈ 82.0%

This slight decline in CD ratio suggests banks are keeping more liquidity or facing challenges in lending opportunities. It could also indicate tightened central bank supervision or regulatory reserve requirements.

Interpretation and Implications

1. Liquidity Conditions: The deposit surge shows strong liquidity availability, providing a favorable base for future credit growth.

2. Lending Behavior: Cautious credit growth implies either subdued borrower demand or tightened credit policies — possibly due to economic uncertainties, NPL concerns, or risk-aversion.

3. Policy Signal: These trends may prompt the central bank to reassess interest rates, CRR/SLR requirements, or refinance schemes to balance growth with stability.

4. Investment Implications: Rising deposits can support capital market investments, infrastructure financing, and support for MSMEs, provided credit channels are expanded efficiently.

Nepal’s banking system remains robust with consistent deposit growth and stable credit expansion. However, the widening gap between deposit and credit growth points toward underutilized liquidity. This scenario calls for strategic policy adjustments to enhance credit deployment, spur economic activity, and ensure balanced financial sector development in FY 2024/25.