Nepal Rastra Bank advises commercial banks on strategy amid slow lending, rising bad loans

Nepal Rastra Bank (NRB), Nepal’s central bank, has advised commercial banks to refine their business strategies and manage expenses to improve profitability. The directive comes amid concerns over sluggish loan growth, an increase in non-performing loans (NPLs), and rising operational costs across the banking sector.The NRB’s regulation department convened a meeting with the chairpersons and audit committee-focused directors of commercial banks on Friday, October 9, 2026. The central bank urged them to focus on strategic business development to address the current challenges.As of October 4, 2026, the total deposits collected by banks and financial institutions reached Rs 8.458 trillion. However, loan disbursements amounted to only Rs 6.061 trillion during the same period. This discrepancy has resulted in an excess liquidity of over Rs 1.3 trillion available for immediate investment within the banking and financial institutions.The overall financial system’s credit-deposit (CD) ratio stands at 71.09 percent, indicating that banks have significant funds available for lending that are not currently being deployed. This excess liquidity, coupled with a lack of expected economic activity, has made monetary management challenging for the central bank.Challenges in the banking sectorThe NRB highlighted that the slow pace of economic activity, reduced consumer demand, pressure from bad loans, and issues in the rural economy have led investors to adopt a ‘wait and watch’ approach. This cautious sentiment has contributed to the accumulation of investable funds in banks and financial institutions, pushing the CD ratio to a low point.The central bank also noted a deterioration in the quality of previously extended loans, leading to an increase in the non-performing loan ratio. Furthermore, banks’ non-banking assets, which are assets acquired through loan defaults, have reached Rs 56.80 billion.NRB’s liquidity management effortsIn response to the prevailing liquidity situation, Nepal Rastra Bank is actively managing market liquidity by withdrawing cash through deposit collection instruments. On Friday, October 9, 2026, the NRB plans to withdraw Rs 70 billion in cash from the market in a single lot. Interested banks and financial institutions can submit online applications until 3 PM on the same day.Looking ahead, the NRB is also developing a digital financing hub and plans to host an annual ‘Regulator Fintech Showcase’. In a related development, the Fintech Alliance Nepal, an association of financial technology businesses, is organizing the Nepal Fintech Exhibition from Ashoj 23 to 25 (BS) at Heritage Garden in Lalitpur.