NRB’s data shows increase in loan demand, banking sector optimistic

KATHMANDU: Recent data from Nepal Rastra Bank (NRB) has indicated a significant rise in loan demand within the banking system. As of the beginning of the current fiscal year, a total of NPR 2 billion in loans was disbursed in the month of Shrawan, but this figure surged to approximately NPR 40 billion by the end of Bhadra.

According to NRB’s statistics from two days ago, commercial banks alone disbursed NPR 8 billion in loans in a single day. In parallel, deposit collection has also increased during this period. Despite NPR 5 billion being withdrawn from the banking system in a single day, around NPR 30 billion in deposits were collected throughout Bhadra.

The loan-to-deposit (CD) ratio of banks and financial institutions has dropped to 79.02 percent, leaving around NPR 712 billion in investable funds available within the banking system.

With the rise in loan demand, banks have started reducing their investments in NRB’s deposit collection tools. On Wednesday, only eight financial institutions participated in NRB’s NPR 40 billion deposit collection tool, reflecting a shift in focus towards loan disbursement.

The weighted average interest rate from Wednesday’s auction stood at 2.99 percent. Banks and financial institutions have ramped up lending after NRB issued a circular setting the countercyclical buffer at zero percent for the current fiscal year.

Bankers have indicated that by reducing the countercyclical buffer to zero percent, approximately NPR 250 billion in additional loanable capital will be available within financial institutions.

Additionally, NRB has increased the limit on Regulatory Retail Portfolio (RRP) to NPR 25 million through its current fiscal year’s monetary policy. This move has provided capital relief for banks under pressure. Similarly, NRB has allowed banks to maintain a risk weight of 20 percent when purchasing priority shares and loans, further facilitating lending.

Through its monetary policy, NRB has also introduced measures to reduce non-performing loans (NPLs). These include lowering the provisioning requirement for performing loans from 1.20 percent to 1.10 percent, providing flexibility in loan capital variance, and allowing restructuring of loans for construction businesses. This has helped improve the financial health of many banks and financial institutions, signaling a rise in loan disbursements.

For the past two years, Nepal’s economy has struggled due to low loan disbursement and sluggish construction activity. However, with the recent uptick in loan disbursement, signs of economic recovery are emerging.

The stock market has also fueled optimism, showing an increase of nearly 1,000 points before entering a correction phase. With significant issuance of share-based loans in recent times, the stock market is expected to turn positive again in the coming period.

The interest rate on loans has come down to single digits, and further reductions are anticipated in Ashoj, creating a favorable investment environment in the Nepali economy.

Meanwhile, the tourism sector, which had been slow for an extended period, is beginning to regain momentum, according to industry insiders.

With adequate liquidity in the banking system and Nepal’s external sector in a stable position, the upcoming festive season, including Dashain, Tihar, and Chhath, is expected to give a further boost to the market. Additionally, government revenue has increased compared to the previous fiscal year, signaling positive prospects for Nepal’s economic recovery in the near future.