CD Ratio at 76%: How Banks Are Balancing Lending and Deposits

As of Saun End, 2082 (Mid-August 2025), Nepal’s Credit-to-Deposit (CD) ratio stands at 76.19%, reflecting a careful balancing act between deposit mobilization and credit expansion. Commercial banks (Class “A”) show a CD ratio of 75.48%, development banks (Class “B”) are slightly higher at 83.28%, and finance companies (Class “C”) stand at 77.81%. These figures suggest that while the overall system remains comfortably below the regulatory ceiling, smaller institutions are operating with thinner cushions, making them more vulnerable to liquidity stress.

From a stability perspective, the current ratio indicates that banks have not overextended themselves in lending relative to deposits. The fact that the aggregate figure remains below the 90% threshold shows that the system still has lending capacity and is managing liquidity prudently. Commercial banks, which dominate the financial sector, have adopted a relatively conservative approach, ensuring that they maintain strong liquidity positions while still extending credit to productive sectors of the economy.

On the other hand, the higher ratios in development banks and finance companies reflect a more aggressive lending approach, which, while supporting local businesses and SMEs, carries higher risk in the event of deposit outflows or a slowdown in loan repayments. The reliance on fixed deposits (48.14% of total deposits) provides stability in funding but also raises interest costs, which may put pressure on profitability if lending rates decline or if credit quality deteriorates.

The CD ratio also plays a key role in understanding how banks are navigating between supporting economic growth and safeguarding financial stability. A moderate ratio such as 76% ensures that there is room for credit expansion while maintaining liquidity to meet unexpected withdrawals or market shocks. This balance will be crucial in the coming months as Nepal’s economy continues to face challenges from rising non-performing loans (NPLs), global uncertainty, and domestic fiscal pressures.