Government Securities Hold 15% of Deposits: A Safety Net for Nepal’s Banks

As of Saun End, 2082 (Mid-August 2025), Nepal’s banking sector has invested 15.15% of total deposits in government securities, a critical indicator of financial prudence and risk management. Breaking it down, commercial banks (Class “A”) lead with 15.33%, development banks (Class “B”) maintain 14.04%, and finance companies (Class “C”) are slightly lower at 11.34%. This allocation plays a dual role: it provides a safety cushion for banks while also supporting the government’s fiscal needs.

From the stability perspective, investments in government securities act as a low-risk buffer. Unlike loans to the private sector, which carry default risks, government securities are considered safe assets backed by sovereign credit. Holding 15% of deposits in such instruments ensures that banks have secure, liquid assets that can be quickly liquidated in times of stress. This becomes even more important as credit risks rise, with non-performing loans (NPLs) at 4.62% overall and reaching 11.05% in finance companies.

For liquidity management, government securities are also a vital tool. They count as part of liquid assets, strengthening the Total Liquid Assets to Deposit ratio of 23.74% across the system. If banks face sudden withdrawal pressures or funding shortages, these securities can be sold or repo-ed with Nepal Rastra Bank to generate immediate liquidity, thus reducing systemic stress.

At the macroeconomic level, this investment also demonstrates how banks play a key role in financing the government. By channeling deposits into treasury bills and bonds, banks help the state manage budget deficits and fund infrastructure and development projects. However, there is a trade-off: higher exposure to government paper may limit the volume of credit flowing into the private sector, potentially slowing economic dynamism.

Overall, the 15% share of deposits in government securities reflects a cautious, risk-averse strategy that strengthens banks’ resilience while ensuring steady funding for the state. Yet, striking the right balance between sovereign investments and private sector lending will remain essential to sustain both financial stability and economic growth.