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.
Kathmandu Gorkhas face Sudurpaschim Royals in the first of two NPL matches in Kirtipur, while Chitwan Rhinos meet Janakpur Bolts in the afternoon fixture.
13-NOV-2026 10:52 AM
Nepal Airlines’ government-guaranteed aircraft loan liability has reached Rs 55.92 billion, comprising Rs 44.68 billion in principal and Rs 11.24 billion in interest.
10-NOV-2026 11:20 AM
Sudurpaschim Royals face Janakpur Bolts in the NPL 2026 at Kirtipur today, with both teams seeking valuable points to strengthen their playoff prospects.
10-NOV-2026 10:52 AM
Nepal imported 3.42 million playing cards worth Rs 116.8 million in the first quarter of fiscal year 2026/27, generating Rs 70.7 million in customs revenue.
09-NOV-2026 04:46 PM
Pokhara Avengers secured their first NPL victory, beating Karnali Yaks by 63 runs after Yuvraj Samra scored 102 and the team posted 217 for three.
09-NOV-2026 04:38 PM
Karnali Yaks will meet Pokhara Avengers at 12:30 pm, while Chitwan Rhinos face Kathmandu Gorkhas in the second match of Monday’s NPL double-header in Kirtipur.
09-NOV-2026 10:33 AM
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.
Paudel also said the sector’s gross non-performing loan ratio has reached around 5.5% to 6%, while the net NPL ratio remains below 2%. Provisions maintained by banks and financial institutions are sufficient to absorb the associated risks, according to his remarks.
He further said preparations are underway to establish an asset management company to manage non-banking assets held by banks and financial institutions. The draft for the proposed company has already been prepared, while the government’s current fiscal-year budget has set a target of establishing the company by the end of Poush.
Paudel said stronger coordination and mutual understanding among regulators, investigative agencies and law-enforcement bodies are needed to address problems in the banking sector. He cautioned that assessing loans issued under the standards applicable at the time only through current standards could have negative consequences for banking and credit flows.
He said clearer regulation, a more supportive environment for loan recovery and greater use of project-based financing could help improve credit flows in Nepal’s banking sector.