Foreign Liabilities Drop 27% as Nepal’s Banks Reduce External Borrowings

Nepal’s banking sector has witnessed a significant reduction in foreign liabilities, declining by 27 percent year-on-year, according to the Other Depository Corporation Survey for mid-August 2025 published by the Nepal Rastra Bank (NRB). The data shows that total external borrowings of financial institutions fell to Rs. 34.7 billion, down from Rs. 47.5 billion a year earlier, as banks increasingly relied on domestic liquidity instead of overseas financing.

This sharp decline indicates a structural shift in the funding composition of Nepal’s banks. During periods of tight liquidity, banks often turn to foreign lines of credit; however, the recent improvement in domestic liquidity — aided by record-high remittance inflows and strong foreign reserves — has reduced the need for external borrowing.

Analysts note that the reduction in foreign liabilities also reflects tighter global lending conditions and a cautious approach by Nepali banks toward foreign currency exposure amid exchange rate volatility. The strengthening of the Nepali rupee against the dollar in recent months, combined with higher domestic deposit mobilization, further discouraged banks from maintaining expensive foreign debt positions.

At a broader level, the decline in foreign obligations has helped strengthen Nepal’s external balance sheet, easing pressure on foreign reserves and mitigating foreign exchange risks. Experts say this trend supports macroeconomic stability, though it also highlights the limited integration of Nepal’s financial institutions with global capital markets — a factor that may constrain access to international funding in times of need.