Five-Year Trend of CAR NPL and CD Ratio in Nepal

Over the past five years, Nepal’s commercial banking sector has experienced significant shifts in capital adequacy, loan quality, and liquidity management. The Capital Adequacy Ratio (CAR), which stood comfortably above 14% in 2020/21, has been on a gradual downward path, reaching 12.78% by mid-July 2025 (Asadh 2082). While still above NRB’s minimum requirement, this decline signals growing pressure on banks’ capital buffers due to rising lending exposure and weaker profitability. Private banks like Standard Chartered (17.82% CAR) and NIMB (13.73% CAR) remain stronger, while state-owned banks show thinner cushions.

At the same time, Non-Performing Loans (NPLs) have risen sharply, emerging as the biggest risk for the sector. From less than 2% in 2020/21, NPLs have steadily climbed, surpassing 4.44% system-wide in 2025. This surge reflects repayment stress from borrowers after high interest rates, liquidity shortages, and weak credit discipline. State-owned banks such as Nepal Bank (4.47% NPL) and ADBL (3.26%) are more exposed, while private institutions like Everest Bank (0.38%) and Standard Chartered (1.47%) display stronger risk management practices. The rise in NPLs directly impacts banks’ profitability and investor confidence, making this trend a central concern for regulators and market participants.

Meanwhile, the Credit-to-Deposit (CD) ratio has shown a volatile cycle. In 2020/21, banks enjoyed a stable liquidity position with CD ratios around 80%, but this shot up above 90% in 2022/23 during the liquidity crisis, when credit outpaced deposit mobilization. Since then, NRB interventions and slower loan demand have helped normalize the average CD ratio to 76.63% in 2025. However, disparities remain—private banks like Citizens (84.45%) and NMB (84.31%) are still running close to regulatory ceilings, while state banks such as Rastriya Banijya Bank (62.27%) remain conservative, prioritizing liquidity safety over aggressive lending.