Impact of NRB Directives on Commercial Banks’ 2025 Performance

The year 2025 has been a challenging yet defining period for Nepal’s commercial banks, largely shaped by the directives issued by Nepal Rastra Bank (NRB). These directives, aimed at stabilizing the financial system, directly influenced lending patterns, liquidity management, profitability, and compliance with sectoral lending targets.

First, NRB’s strict enforcement of Credit-to-Deposit (CD) Ratio at 90% capped aggressive lending practices that many private banks were pursuing. This forced banks like NIC Asia, NMB, and Citizens Bank — which were operating with CD ratios above 83% — to slow loan expansion and focus more on deposit mobilization. In contrast, state-owned banks such as Rastriya Banijya Bank (62.27%) and Nepal Bank (71.10%) found themselves comfortably within the limits, giving them a more conservative but stable footing.

Second, NRB’s directive to maintain a minimum Capital Adequacy Ratio (CAR) of 11% pushed weaker banks to shore up their capital buffers. While Standard Chartered (CAR 17.82%) and ADBL (13.36%) comfortably exceeded the requirement, some mid-tier banks hovered near the threshold, signaling the importance of capital planning for long-term stability.

Third, the regulator’s emphasis on prescribed sector lending (minimum 11% to agriculture, 6.5% to energy, and 11% to MCSME) reshaped portfolio strategies. Agriculture Development Bank became a clear leader, allocating 28.55% to agriculture and 24.64% to MCSME, far above the minimum, aligning with NRB’s developmental goals. Many private banks, however, barely met or struggled to comply, reflecting their preference for less risky urban-focused lending.

Finally, NRB’s directives around base rate transparency and spread control affected profitability. Banks with high spreads, like NIC Asia and Prabhu, faced increasing scrutiny, as investors began to question whether aggressive lending strategies aligned with long-term stability. Meanwhile, low base rate banks gained borrower confidence but at the cost of narrower margins.

For investors, NRB’s regulatory stance has been a double-edged sword: it has protected the system from overheatingbut also restricted short-term profit growth for aggressive banks. In the long run, these directives aim to create a healthier, more resilient banking sector by enforcing balance between growth, risk management, and developmental priorities.