Over the past few years, Nepal’s sluggish economy has been further strained by the impact of the GenZ movement, which has played a significant role in increasing non-performing loans (NPLs) in commercial banks. As the economy attempted to recover, the movement created difficulties in loan recovery, leading to a notable surge in bad loans across the banking sector.

According to the latest data, non-performing loans have risen by more than 20% in the first quarter of the current fiscal year compared to the same period last year. The average NPL ratio, which stood at 4.04% during the first quarter of the previous fiscal year, has now climbed to 4.86%.

In the first quarter of the last fiscal year, only Nepal Investment Mega Bank and Laxmi Sunrise Bank had NPL ratios above 5%. However, as of the first quarter of the current fiscal year, the number of banks with NPLs exceeding 5% has increased to nine.

The Nepal Rastra Bank (NRB) considers banks with NPLs below 5% to be in a relatively safe position. Accordingly, most commercial banks strive to keep their bad loans under this threshold. Despite these efforts, adverse conditions have pushed many banks beyond the safe limit.

Banks with the Highest NPL Ratios

According to the first-quarter report of the current fiscal year:

• Himalayan Bank has the highest NPL ratio at 7.39%. After merging with Civil Bank, Himalayan Bank has struggled to maintain a strong balance sheet.
• NIC Asia Bank and Kumari Bank follow closely with NPL ratios of 6.99% and 6.98%, respectively.

NIC Asia Bank, once known for its aggressive loan expansion strategy, is now facing challenges as rising bad loans have forced it to increase loan loss provisioning — which has constrained new lending. The bank, which did not distribute dividends to investors last year, is unlikely to do so this year as well. Similarly, Kumari Bank has not provided dividends for the past two consecutive years.

Other banks with NPL ratios exceeding 5% include:

• Nepal Bank Limited (government-owned)
• Prime Commercial Bank
• Prabhu Bank
• Nepal Investment Mega Bank
• Laxmi Sunrise Bank

Reasons Behind the Surge

According to Sanima Bank CEO Nischal Raj Pandey, the GenZ movement and continuous rainfall-induced natural disasters have severely affected many businesses, making it difficult for borrowers to pay installments and interest on time. As a result, banks have seen an increase in bad loans. Moreover, the need to allocate higher provisions for non-performing assets has negatively impacted overall profitability.

Banking Sector Trends

• Deposits grew by 6.16%, while loan disbursement increased by 14.19% during the first quarter.
• NIC Asia Bank and Standard Chartered Bank Nepal recorded a decline in deposit collection compared to the same period last year, whereas Himalayan Bank reported negative loan growth.

Net Interest Income Overview

On average, the net interest income of commercial banks rose by 5.64% during the review period. However, several major banks, including NIC Asia Bank, Nepal SBI Bank, Nepal Investment Mega Bank, Nabil Bank, and Standard Chartered Bank, reported a decline in net interest income compared to the previous fiscal year.