Asset-backed lending discourages project-based financing in Nepal, says NRB official

Kathmandu, September 19, 2026 — Nepal Rastra Bank Executive Director and spokesperson Gurup Prasad Paudel has said Nepal’s heavy reliance on asset- and collateral-backed lending has discouraged banks and financial institutions from expanding project-based financing.

Speaking at a programme on the challenges facing the banking sector and the economy organised by Artha Ko Artha in Kathmandu, Paudel said around 67% of lending in Nepal is based on fixed assets or collateral.

According to Paudel, the practice makes banks less inclined to assess projects on the basis of feasibility, risk and innovation. When loans can be secured against assets, he said, financial institutions have less incentive to take risks and invest in innovative projects.

He argued that Nepal’s financial system needs to shift from asset-backed financing to project-based financing and that banks should be equipped to evaluate and manage project risks more effectively.

Paudel also said banks and financial institutions are currently facing challenges in both credit expansion and loan recovery. He said a narrative that small borrowers do not need to repay their loans has created difficulties for both lenders and borrowers.

He stressed that small and medium-sized business lending is particularly important for Nepal’s economy. According to him, thousands of cottage and small industries could meet their financing needs with loans of around Rs 1 million to Rs 1.5 million, but banks have shown some reluctance to extend such loans because of difficulties associated with recovery.

Paudel said obstacles in the recovery process, including difficulties in obtaining property-boundary certification and support for issuing notices from local authorities, can affect the banking sector more broadly. Weak loan recovery can ultimately constrain new lending and increase pressure on banks’ non-performing loans, he said.

Despite these challenges, Paudel said Nepal’s banking sector remains relatively strong in terms of its financial condition. He said the capital adequacy ratio of banks and financial institutions is around 9.7%, above the regulatory minimum of about 8.5%. However, he noted that asset quality has come under increasing pressure over the past four to five years.