Nepal's banking sector faces mixed trends in credit and asset quality

Nepal's financial landscape is currently defined by a divergence between institutional efforts to boost lending and systemic challenges in credit expansion and asset management. While commercial banks are rolling out new incentives to attract borrowers, recent data from the Nepal Rastra Bank (NRB) highlights a broader struggle to meet credit growth targets.

New lending initiatives

To mark its 90th anniversary, Nepal Bank Limited has launched a special housing loan scheme, the 'Ne.Ba.Li. Sarbasulav Aawas Karja'. According to Annapurna Post, the scheme offers an interest rate starting at 0.5 percent above the base rate, with a loan tenure of up to 25 years and a service charge of 0.25 percent. The offer runs for 90 days starting from 1 November 2026, and borrowers also get a lifetime free credit card and a 50 percent discount on annual locker fees. The push comes in a market where private sector credit growth has lagged well behind central bank targets for the past two years.

Credit expansion and sector shifts

Karobar Daily reports that overall private sector credit growth remains sluggish. While total commercial bank lending has passed Rs 5.4 trillion, growth over the past two fiscal years reached only about half of the NRB's target of roughly 12 percent, and the pace in the first three months of the current fiscal year has also fallen short. Analysts cited by the paper say the private sector remains hesitant to invest, pointing to concerns over government security and the risk of legal action over minor business errors.

Data from Artha Sansar shows that as of mid-September 2026, total credit from banks and financial institutions reached Rs 6.017 trillion. The report notes that while credit has increased in sectors like consumption, production, electricity, and construction, it has seen a notable decline in agriculture and microfinance. Consumption-related loans, particularly those backed by gold and silver collateral, saw a 3.5 percent increase, while credit for wholesale and retail trade also grew by 2.5 percent.

Rising non-banking assets

Banks are also dealing with a rise in non-banking assets: properties they take over when defaulted loans cannot be recovered through auction. Citing NRB data, Himal Press reports that the total non-banking assets held by 20 commercial banks reached Rs 47.7 billion by mid-September 2026, an increase of over 11 percent compared to the previous year. Himalayan Bank holds the largest share of these assets, while other institutions like Nepal Investment Mega Bank have seen significant growth in their non-banking portfolios. The build-up points to the difficulty banks face in recovering loans in the current economic climate.