What’s wrong with Nepal’s banks?

Nepal’s banking sector is trapped in a cycle of mediocrity that erodes state's economic potential.

The latest quarterly review by the Nepal Rastra Bank (NRB) paints a healthy yet concerning picture of Nepal’s economy. The surface is green— remittances have surged by 35.4 percent to a staggering Rs553.31 billion, foreign exchange reserves cover over 16 months of imports , and the central bank has slashed the policy rate to 4.25 percent to spur growth. But walking into any industrial estate or talking to any small- and medium-sized enterprise owner, a different reality is revealed: Banks are flush with cash, yet credit expansion is paralysed, non-performing loans climb and banks accumulate tens of billions of rupees in foreclosed property they cannot sell. This is a structural failure, with roots in incentives, governance and outdated business models.