Non-performing Loans of Development Banks Near 10 Percent

The proportion of non-performing loans (NPLs) of Nepal’s development banks has climbed close to 10 percent as of mid-October in the current fiscal year (FY) 2025/26. The rise is attributed to weak loan recovery and sluggish new lending, reflecting continued financial strain in the sector.

According to unaudited financial reports, the average NPL ratio across 16 development banks reached 9.86 percent by mid-October, up from 7.89 percent in the same period last fiscal year, a jump of 1.98 percentage points within a year.

Out of the 17 development banks currently in operation, the Nepal Rastra Bank (NRB) has classified Karnali Development Bank as a troubled institution and taken control of its management. The bank has yet to publish its first-quarter financial statement for the current fiscal year.

Among the 16 banks that have disclosed their data, 11 reported an increase in bad loans, while only five managed to reduce their NPL ratios compared to last year.

Narayani Development Bank recorded the highest level of bad loans, with an NPL ratio of 57.04 percent as of mid-October 2025. In contrast, Miteri Development Bank reported the lowest at just 0.55 percent.

Bankers say the prolonged economic slowdown over the past two years has weakened borrowers’ repayment capacity, while the general business climate remains sluggish. The situation further deteriorated following the Gen Z protest on September 8–9, which disrupted economic activities nationwide.

Despite efforts by banks to recover bad loans through auctions of collateral, poor market response has led to an accumulation of non-banking assets on their balance sheets.

Under NRB’s loan classification directives, loans are categorized as good if payments are up to date or overdue for less than three months, watchlist for those overdue up to three months, substandard for delays between three to six months, doubtful for six months to one year, and bad for defaults exceeding one year. Loans under the “good” and “watchlist” categories are considered performing, while rescheduled, restructured, substandard, doubtful, and bad loans fall under non-performing or inactive classifications.