Banking Liquidity Improves as Deposits Rise Slightly, Lending Flat

The Nepalese banking system witnessed a marginal improvement in liquidity as total deposits across banks and financial institutions (BFIs) rose slightly on May 20, 2025, while lending figures remained stagnant, indicating a cautious lending environment.

According to the latest data published by the central financial monitoring body, total deposits stood at NPR 6,892 billion, a modest increase from NPR 6,885 billion recorded a day earlier. This small but steady rise reflects a gradual inflow of funds into the banking sector, potentially driven by remittances, institutional inflows, or seasonal deposit trends.

Breaking down the numbers, commercial banks contributed significantly to the deposit hike, with their total deposits climbing to NPR 6,158 billion, up from NPR 6,151 billion. This indicates that commercial banks continue to dominate the financial ecosystem in Nepal. Meanwhile, other BFIs (Development Banks and Finance Companies) recorded a slight increase as well, reaching NPR 735 billion in deposits, compared to NPR 734 billion the previous day.

On the lending front, however, figures remained static at NPR 5,529 billion. Commercial banks accounted for NPR 4,912 billion of this total, and other BFIs contributed NPR 617 billion. The unchanged lending data suggests either a pause in credit disbursement activity or a temporary dip in credit demand. It may also reflect tightening credit assessment standards amid ongoing concerns about non-performing loans or regulatory prudence.

The Credit-to-Deposit (CD) ratio, an important indicator of liquidity pressure, edged down slightly from 79.09% to 79.02%. While still on the higher side, this slight dip suggests a marginal easing in the pressure on banks to generate deposits relative to their lending levels. A CD ratio approaching or exceeding 80% often signals stress in deposit mobilization versus credit creation, so the downward movement, although minor, is seen positively from a liquidity management perspective.

Meanwhile, the interbank interest rate for local currency remained unchanged at 3.00%, indicating stability in short-term interbank borrowing costs. This also points to a relatively calm interbank market, with no immediate signs of liquidity strain.

Overall, the data paints a picture of cautious optimism. While deposit inflows provide a buffer, the lack of movement on the lending side suggests that banks are either waiting for more favorable economic signals or potential borrowers remain hesitant. Policymakers and banks will be watching these trends closely in the days ahead, especially in the run-up to the upcoming fiscal year budget and potential monetary policy revisions.