KATHMANDU, Feb 5: Banks and financial institutions (BFIs) increased private sector lending by 3.4 percent in the first six months of the current fiscal year (FY), with a growing focus on short-term and relatively safer loans amid rising bad debts.
According to the Nepal Rastra Bank (NRB)’s Current Macroeconomic and Financial Situation of Nepal report, BFIs extended new loans worth Rs 187.66 billion during the review period, taking their total loan portfolio to Rs 5.695 trillion. This was 6.33 percent higher year-on-year compared to the loan volume as of mid-January in FY 2024/25.
NRB data show that loans extended to non-financial institutions accounted for 62.7 percent of total lending, while loans to individuals and households made up 37.3 percent. In the corresponding period last year, the shares stood at 64.2 percent and 35.8 percent, respectively, indicating a noticeable increase in lending to individuals and households.
Revised interest rate corridor system introduced
According to bankers, BFIs have increasingly prioritised home loans and margin loans, resulting in stronger credit growth at the individual level. “As home loans and margin loans are relatively safer in terms of recovery, BFIs have shifted their focus away from real estate project financing and overdraft facilities,” said a banker.
During the review period, lending to real estate projects declined by 5.4 percent to Rs 261.13 billion from Rs 275.95 billion, while overdraft lending fell by 3.3 percent. In contrast, personal home loans of up to Rs 20 million increased by 7.8 percent to Rs 450.01 billion.
Similarly, lending against shares as collateral (margin loans) rose by 8.3 percent to Rs 152.40 billion. Demand for margin loans increased after the central bank lifted the lending caps of Rs 150 million for individuals and Rs 200 million for institutions.
Sector-wise, loans to the consumer sector increased by 9.1 percent, followed by construction (7.2 percent) and transportation, communication and public services (6.2 percent). Lending to the manufacturing sector grew by 4.4 percent, while loans to the service sector increased marginally by 0.9 percent. In contrast, lending to the agricultural sector declined by 1.1 percent.
With private sector credit growth remaining sluggish as of mid-January, the central bank is likely to miss its annual lending growth target of 12 percent in FY 2025/26 as well. In the previous fiscal year, BFIs’ lending to the private sector grew by 8.4 percent, falling short of NRB’s target of 12.5 percent.
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