Development Bonds Surge to Rs. 913.7B: Commercial Banks Dominate Government Debt Market

Nepal’s outstanding development bonds climbed to Rs. 913.7 billion by mid-August 2025/26, marking a sharp increase of nearly Rs. 40 billion in just one month. The government’s rising preference for long-term debt instruments reflects a clear attempt to reduce the refinancing risks associated with short-term treasury bills, which fell by Rs. 27.1 billion in the same period.

Commercial banks remain the overwhelming leaders in this segment, holding Rs. 753.2 billion worth of development bonds, which accounts for more than 80% of the total. Development banks and finance companies have smaller stakes, with Rs. 86.1 billion and Rs. 16.4 billion respectively, while “others” — including insurance firms and provident funds — increased their holdings significantly to Rs. 49.1 billion. Nepal Rastra Bank’s role has diminished, holding just Rs. 8.8 billion.

Analysts argue that the dominance of commercial banks in government debt markets highlights both strength and risk. On one hand, it ensures steady financing for the state, but on the other, it may crowd out private sector lending if liquidity tightens. The surge in development bonds also suggests that the government is locking in longer repayment periods to spread out debt servicing obligations, but at the cost of potentially higher interest rates.