CD Ratio Falls to 62.59% Amid Excess Liquidity, Lending Slump in BFIs

The average credit-to-deposit (CD) ratio of commercial banks has dropped significantly, reaching just 62.59 percent for some institutions, underscoring a growing liquidity surplus in the banking system due to sluggish credit demand.

Although the Nepal Rastra Bank (NRB) allows banks and financial institutions (BFIs) to lend up to 90 percent of their core deposits and capital base, recent trends show a stark underutilization of this limit. For over two years now, lending activities have remained subdued, leading to substantial excess liquidity.

According to data from the Nepal Bankers’ Association, Rastriya Banijya Bank, a government-owned entity, recorded the lowest CD ratio at 62.59 percent by the end of FY 2081/82 (mid-July 2025). Among the 20 commercial banks, three have CD ratios below 70 percent, while 11 fall within the 70–80 percent range. Only six banks have slightly exceeded the 80 percent mark, still well below the regulatory ceiling.

By mid-July 2025, the average CD ratio of commercial banks stood at 75.78 percent, down from 78.89 percent a year earlier.

The NRB reports that BFIs are currently parking around Rs. 700 billion of idle funds at the central bank. On the first day of the current fiscal year, BFIs placed Rs. 306 billion under the NRB’s standing deposit facility, highlighting their struggle to find lending opportunities.

This accumulation of unutilized funds stems from two key factors: subdued credit demand and a strong surge in deposit mobilization. Recent NRB data reveals that BFIs had collected deposits worth Rs. 7.292 trillion, while total loan disbursement stood at just Rs. 5.600 trillion.

Adding to the pressure, banks are also grappling with a rise in loan defaults, non-performing assets, and increasing non-banking assets, further discouraging aggressive lending.

Simultaneously, rising remittance inflows through formal channels have added to the liquidity surplus, contributing to a decline in average interest rates across the banking sector. As per NRB's latest statistics:

Weighted average interest rate on loans: 7.99 percent

Average deposit rate: 4.29 percent

Weighted average interbank rate: 2.87 percent