Are Nepali Banks Over-Lending? CD Ratio Explained

The Credit-to-Deposit (CD) ratio is one of the most important indicators of how aggressively a bank is lending compared to its deposit base. A higher CD ratio means a bank is lending out a large share of its deposits, which boosts earnings but leaves limited liquidity buffers. A lower CD ratio reflects a more conservative lending stance, ensuring higher liquidity but potentially lower profits. For Nepal’s banking sector, Nepal Rastra Bank (NRB) sets strict CD ratio thresholds to prevent excessive risk-taking and liquidity crises.

From the Asadh 2082 (Mid-July 2025) NRB report, the overall CD ratio of commercial banks stood at 76.63%, showing that banks are lending more than three-quarters of their deposit base. Among individual banks, Rastriya Banijya Bank (62.27%) and Nepal Bank (71.10%) showed relatively conservative lending approaches, holding back liquidity buffers. In contrast, private banks like NMB (84.31%), Prime Commercial (83.37%), and Citizens Bank (84.45%)crossed the 83% level, showing aggressive loan expansion compared to deposits.

While high CD ratios indicate profit-driven lending strategies, they also pose risks during economic slowdowns or liquidity shortages. If deposit inflows weaken, highly leveraged banks may struggle to meet obligations, pressuring both depositors and investors. On the flip side, banks with moderate CD ratios (around 75–78%) such as Global IME and NIC Asia strike a balance between growth and safety, making them relatively stable.

For NEPSE investors, CD ratios are critical because over-lending can increase NPL risks and reduce dividend payouts if provisioning rises. For depositors, aggressive CD ratios can raise concerns about liquidity in case of large withdrawals. Thus, CD ratio is not just a technical metric but a direct measure of a bank’s risk appetite versus safety cushion.