Nepal’s liquidity paradox

The structural roots of Nepal’s liquidity crisis are becoming clearer by the day.

Nepal’s financial system poses a striking paradox: Banks are oversupplied with money, but the real economy is struggling to get credit. By the first quarter of this fiscal year, banks had over Rs1.1 trillion in loanable funds: One of the biggest surpluses in Nepal’s history. Monthly remittances above Rs200 billion have further inflated deposits. But despite the surplus, the credit-deposit ratio has hovered at around 74 percent, industries continue to operate way below capacity, interest rates have slumped to a four-year low, and households and businesses remain extremely wary of borrowing. This contradiction highlights deeper issues in the structure and direction of Nepal’s economy. Structural treatment is now pressing action.