Key Financial Indicators & Market Share
Despite economic challenges, commercial banks saw growth in both deposits and total assets, maintaining a dominant 83.87% share of the banking sector's total assets and 87.09% of total deposits.
- Total Deposits: Increased by 13.63% to Rs. 6,541.65 billion.
- Total Credit: Increased by 10.49% to Rs. 4,963.15 billion.
- Deposit-to-GDP Ratio: Reached 105.51%, reflecting expanding financial access.
- Credit-to-GDP Ratio: Shrank to 80.05%, indicating a slowdown in credit flow toward production and consumption.
Sharp Rise in Non-Performing Assets (NPAs)
The central bank's report underscores a significant deterioration in asset quality across the banking sector:
- Bad Loans: Total non-performing loans surged by 22.40% to Rs. 220.33 billion.
- NPA Ratio: Climbed to 4.44% (up from 3.76% the previous year).
- Public Sector Banks: 4.56%
- Private Sector Banks: 4.38%
- Non-Banking Assets (NBAs): Spiked by 41.77% compared to the previous fiscal year. The total NBA volume reached Rs. 42.75 billion, with private banks accounting for the lion's share at Rs. 40.85 billion.
Profitability and Interest Rates
The commercial banking sector recorded a modest 5.90% increase in net profit, totaling Rs. 52.82 billion. However, a sharp divide emerged between public and private institutions:
- Public Sector Banks: Net profit skyrocketed by 76.08%.
- Private Banks: Net profit contracted by 2.75%.
Additionally, the average interest rate spread narrowed from 3.98% to 3.66%, while the weighted average interest rate on loans dropped sharply from 12.30% to 7.85%. Sector-wise, consumer credit led loan disbursements at 19.36%, closely followed by wholesale and retail trade at 19.06%. Notably, 88.58% of all loans remain secured against real estate collateral.
Meanwhile, digital adoption continued its upward trajectory, with mobile banking users reaching 23.7 million and internet banking users hitting 1.6 million.
NRB Exposes Serious Governance Malpractices
During its supervisory review, the central bank unmasked severe deficiencies in corporate governance, risk management, and internal control systems across financial institutions.
Key Irregularities Uncovered by the NRB:
- Evergreening of Loans: Banks were found engaging in the illicit practice of issuing fresh loans to existing borrowers at the end of quarters to cover maturing principal and interest, effectively masking the true volume of bad loans.
- Fund Diversion: Disbursed loan amounts were frequently transferred directly into the accounts of company directors or related parties immediately after release, with banks failing to monitor the actual utilization of funds.
- Compromised Internal Controls: Performance evaluations for Chief Risk Officers (CROs) and Internal Audit Chiefs are being conducted by CEOs rather than independent committees. This puts pressure on risk officials to compromise standards to meet aggressive corporate business targets.
- Board Appointment Flaws: Directors are increasingly being appointed directly via casual vacancies instead of undergoing proper election processes during General Meetings, reducing the AGM to a mere rubber-stamp body later on.
- Operational and IT Vulnerabilities: Internal audit departments are plagued by massive backlogs and unresolved audit arrears due to a lack of permanent staff and an over-reliance on trainees. Furthermore, banks continue to use outdated software in ATMs, and security protocols—such as maintaining CCTV footage in sensitive branch areas for the mandatory duration—are being routinely ignored.
In response to these systemic vulnerabilities, Nepal Rastra Bank has issued strict additional directives designed to enforce transparency, correct structural loopholes, and insulate the country's financial system from systemic risk.
