NRB Extends Time for Implementation of Counter-Cyclical Buffer

Kathmandu – Nepal Rastra Bank (NRB) has extended the time for banks and financial institutions to implement the Counter-Cyclical Buffer (CCyB). With this provision, commercial banks will not be required to maintain additional capital under the buffer during the current fiscal year.

NRB amended the Unified Directive 2081 and set the counter-cyclical buffer at zero percent for this fiscal year. Earlier, from FY 2080/81, commercial banks were required to maintain the buffer as per the Capital Adequacy Framework, 2015.

With the buffer kept at zero, banks now only need to maintain a Capital Adequacy Ratio (CAR) of 11% and a Tier-One Capital Ratio (CCAR) of 8.5%. According to NRB, this provision will enhance the lending capacity of banks by easing their capital requirements.

Under the Capital Adequacy Framework, 2015, commercial banks were required to maintain 0.5% of their total risk-weighted assets (RWA) as a counter-cyclical buffer. NRB had already initiated the implementation of this buffer from the previous fiscal year.

A counter-cyclical buffer refers to the additional core capital that banks must hold to mitigate risks when credit growth exceeds GDP growth. By setting this buffer to zero for the current fiscal year, NRB has temporarily reduced the capital burden on banks, thereby giving them more room for credit expansion.