Nepal Development Banks Sector — Industry Report 2026

Sector Overview

Nepal's development banking sector comprises 17 licensed national-level development banks (Class B institutions) as of mid-July 2024, a number that has been stable since a consolidation wave reduced it from 79 in 2010 and 33 by 2018. The sector regulator is the Nepal Rastra Bank (NRB) under the Banks and Financial Institutions Act 2073 (BAFIA 2073).

As of mid-July 2025, the sector held:

• Total assets: NPR 721.2 billion
• Deposits: NPR 628.9 billion
• Loans and advances: NPR 524.1 billion
• Gross NPL: 5.04% of total loans (Source: NRB Annual Report FY2081/82, development bank sector data — Primary)

The sector's NPL has continued to deteriorate beyond this snapshot: all Nepal BFI (banks, finance companies, and development banks combined) gross NPL reached approximately 5.60% by mid-April 2026. (Source: NRB monetary data, April 2026 — Primary.)

Credit growth for the sector was approximately 5.0% in the 10 months of FY2082/83, reflecting both cautious borrower demand in a slow economic environment and banks' own conservatism in new lending given elevated NPL. Deposit rates fell approximately 141 basis points to 3.70% as NRB reduced its policy rate to 4.5%. (Source: NRB FY2082/83 monetary policy data — Primary.)

Only two development banks are listed on NEPSE with meaningful public coverage: Muktinath Bikas Bank Limited (NEPSE: MNBBL) and Garima Bikas Bank Limited (NEPSE: GBBL). Together they account for approximately 33–37% of total sector assets.

Structure of the Sector

Historical Consolidation

Nepal's Class B sector underwent dramatic consolidation driven by NRB's 2015 minimum paid-up capital directive requiring district-level development banks to merge or upgrade to remain licensed:

Source: NRB Annual Reports, various years — Primary.

The consolidation eliminated dozens of small, undercapitalized, geographically-limited institutions, leaving 17 national-level institutions with NPR 8 billion minimum paid-up capital (for Class A commercial bank eligibility) or approximately NPR 1–2.5 billion for regional development banks — though all remaining are national-level by the latest NRB directive. The merger wave created larger balance sheets but also absorbed legacy NPL from merged entities, contributing to the sector's current elevated NPL.

Class B versus Class A

Development banks (Class B) compete directly with commercial banks (Class A) for deposit and lending market share in the SME, agriculture, and retail segments. Key structural differences:

Source: NRB BAFIA 2073 and subsequent directives — Primary.

With minimum paid-up capital harmonized at NPR 8 billion for both classes, development banks that meet this threshold (MNBBL, GBBL) have a pathway to Class A upgrade. MNBBL's chairman has publicly stated this aspiration. (Source: MNBBL public statements — Secondary.)

Value Chain

The development bank value chain mirrors commercial banking: deposit mobilization (savings and fixed deposits, primarily from households and small businesses) → credit deployment (SME loans, agricultural credit, retail mortgages, deprived-sector microloans) → fee income (remittance facilitation, card services, agent banking). Development banks typically generate 70–80% of operating income from net interest income (interest margin) and 15–25% from fees and commissions.

Development banks are important in Nepal's rural financial inclusion landscape. Their deprived-sector lending mandate (10% of portfolio) directs credit to agricultural and marginalized communities typically underserved by commercial banks. The Rural Telecommunications Development Fund (RTDF) and Nepal Rastra Bank's Financial Inclusion directives intersect here.

Competitive Landscape

Listed Development Banks (NEPSE)

Source: MNBBL and GBBL audited annual reports and Q3 FY2082/83 quarterly filings — Primary.

MNBBL is the largest development bank in Nepal by assets, deposits, and loan book. Its scale (174 branches, 5 extension counters) and CARE-NP BBB credit rating differentiate it from smaller peers, but rising NPL (4.88% at Q3) approaching the 5% regulatory ceiling is the dominant near-term concern.

GBBL is the second-largest development bank (NPR 108.3 billion assets at Q3 FY2082/83) and distinguishes itself by provision coverage of 111.05% — unusually strong, meaning its NPL is more than fully reserved. GBBL's subsidiary Garima Capital provides merchant banking and mutual fund management services.

Other development banks are not listed on NEPSE and do not publish accounts with the frequency or accessibility of MNBBL and GBBL.

Sector NPL by Institution Type (mid-April 2026)

Source: NRB monetary data, April 2026 — Primary. Breakdown by institution type is estimated/derived from NRB aggregate data.

Regulatory Framework

Nepal Rastra Bank (NRB) regulates all Class B development banks under BAFIA 2073 and subsequent circulars. Key provisions:

1. Capital adequacy. Minimum CAR of 11% (BAFIA 2073, NRB Directives). Tier 1 must be at least 8.5% of RWA. Development banks with CAR below floor face mandatory remediation — capital raise, merger, or NRB-directed closure.

2. Liquidity ratio (LDR). Maximum loan-to-deposit ratio (NRB basis) of 90%. A development bank at or above this ceiling cannot expand its loan book without growing deposits first or reducing loans.

3. Deprived-sector lending. Development banks must direct at least 10% of their loan portfolio to deprived-sector borrowers (compared to 5% for commercial banks). This mandate reflects the sector's financial inclusion mandate.

4. Interest rate corridor. NRB's policy rate (4.5%, FY2082/83) anchors short-term rates; the bank rate (6.5%) sets the ceiling. Deposit rates at development banks averaged approximately 3.70% by mid-2025, materially below the FY2079/80 highs of approximately 9–10%.

5. NPL thresholds. NRB's supervisory framework triggers enhanced monitoring and mandatory action plans when gross NPL exceeds 5% — the threshold most relevant for MNBBL and the broader sector.

6. NRB Circular 18/082-83. Issued in FY2082/83, this circular tightened dormant-account classification, disclosure, and provisioning requirements for all BFIs. Development banks bear a proportionally larger compliance burden as they tend to serve geographically dispersed customers with lower digital adoption.

7. FATF grey list. Nepal was placed on the FATF grey list (Financial Action Task Force, for money laundering/terrorism financing control deficiencies) in 2024. This elevates correspondent banking scrutiny and cross-border transaction costs for all Nepali BFIs. Development banks' remittance facilitation businesses are directly affected.

Financial Benchmarks

Sector-level benchmarks are drawn from NRB Annual Report FY2081/82 (development bank segment) and supplemented by MNBBL and GBBL primary data.

¹ Sector NPL as of mid-July 2025 (one year earlier than FY2081/82 year-end; NRB reports with a lag). ² MNBBL FY2081/82 year-end NPL of 2.97% rose rapidly to 4.88% by Q3 FY2082/83. Source: NRB sector data — Primary; GBBL and MNBBL annual reports — Primary; MNBBL estimate Derived.

Average NII spread for development banks has historically been 4.0–4.7%, modestly above commercial banks (which benefit from lower-cost CASA deposits). The development bank cost of deposits is structurally higher because they compete for term deposits without the brand and distribution advantage of large commercial banks. As rates have fallen, this cost differential has narrowed.

Macro Tailwinds and Headwinds

Tailwinds

1. NRB easing cycle. The 141 basis-point fall in deposit rates (to 3.70%) directly expands NII margins for development banks with repricing flexibility. GBBL's cost of funds fell from 5.07% to 3.61% year-on-year; MNBBL's trajectory is similar. NII recovery in FY2082/83 is the primary earnings tailwind.

2. Rural financial inclusion demand. Nepal's rural economy — supported by remittances (NPR 1.4 trillion in FY2081/82, NRB — Primary) — creates ongoing demand for SME credit, agricultural loans, and microfinance products that development banks are well-positioned to serve. Development banks' 10% deprived-sector mandate and broader branch networks give them a structural role in rural lending.

3. Consolidation has removed the weakest players. With 17 banks versus 79 in 2010, the surviving institutions are better capitalized and more professionally managed. Merger benefits (cost synergies, larger deposit bases) continue to be realized by banks like GBBL (which consolidated four entities).

4. Mutual fund and capital market development. GBBL's Garima Samriddhi Yojana and MNBBL's interest in diversifying fee income reflect a broader opportunity as Nepal's capital markets mature. Fee income from fund management, custodial services, and IPO facilitation provides a less credit-risk-dependent revenue stream.

Headwinds

1. Rising sector NPL. The development bank sector NPL at 5.04% (mid-July 2025) and rising reflects elevated stress in the SME and agricultural borrower base. Nepal's private sector has been under pressure from the post-COVID credit cycle, remittance-linked consumption slowdown, and difficult business conditions in trade, real estate, and construction. Development banks' concentration in these segments amplifies their NPL vulnerability relative to large commercial banks.

2. Capital adequacy compression from NPL. As NPL rises, risk-weighted assets increase and provisions consume earnings. Development banks operating with 12–13% CAR have limited buffer against a deteriorating credit cycle without raising fresh capital.

3. Competition from commercial banks. Nepal's large commercial banks (NABIL, Global IME, NIC Asia) have been aggressively expanding into SME lending — the core market of development banks. Commercial banks' lower cost of funds (CASA advantage), stronger technology platforms, and larger capital bases create structural competitive disadvantage for Class B institutions.

4. Class A upgrade pressure. NRB has been signaling that development banks meeting the capital threshold should consider upgrading to commercial bank status. This creates upgrade pressure that may be premature given current credit quality — a commercial bank conversion with 5% NPL is a weak starting position.

5. FATF compliance burden. The ongoing cost of FATF grey-list compliance reduces profitability and management bandwidth, particularly for the remittance-facilitating rural branches.

Companies to Watch

Muktinath Bikas Bank (NEPSE: MNBBL) — Nepal's largest development bank. Strong scale (174 branches, NPR 136.5 billion assets) but its gross NPL of 4.88% (Q3 FY2082/83) is the sector's most closely-watched risk metric, approaching the 5% NRB threshold. CARE-NP BBB rated. Full profile at MNBBL Company Profile.

Garima Bikas Bank (NEPSE: GBBL) — Nepal's second-largest development bank. Distinguished by 111.05% provision coverage (fully reserving all NPL) and a growing subsidiary in Garima Capital. PAT recovery in FY2081/82 (NPR 1,248 million) is tracking well in FY2082/83 (9M annualized EPS NPR 23.21). Full profile at GBBL Company Profile.

Other development banks — The remaining 15 institutions are not listed on NEPSE and do not publish quarterly disclosures in accessible format. Interested investors should review NRB's periodically published financial statements for unlisted BFIs.

References

1. Nepal Rastra Bank — Annual Report FY2081/82. Development bank sector: total assets NPR 721.2 billion, deposits NPR 628.9 billion, loans NPR 524.1 billion, sector NPL 5.04%. nrb.org.np. Primary (regulator).

2. NRB — Monetary Policy FY2082/83 and mid-year review. Policy rate 4.5%, bank rate 6.5%, deposit rate change 141bps, credit growth 5.0% (10 months). Primary (regulator).

3. NRB — BAFIA 2073, Class B licensing, CAR, LDR, deprived-sector mandates, NPL thresholds. Primary (regulator).

4. NRB Circular 18/082-83 — Dormant account classification and provisioning. Primary (regulator).

5. MNBBL Audited Annual Reports FY2077/78–FY2081/82 and Q3 FY2082/83 quarterly report. SEBON filings. Primary, company self-reported.

6. GBBL Audited Annual Reports FY2077/78–FY2081/82 and Q3 FY2082/83 quarterly report. SEBON filings. Primary, company self-reported.

7. MacroNepal — "Comprehensive List of Development Banks in Nepal," June 2025. Development bank count history, branch data. Secondary.

8. CARE Nepal — MNBBL rating rationale, BBB. carenepallimited.com. Secondary.

9. NRB — All-BFI NPL approximately 5.60%, mid-April 2026. Monetary data. Primary (regulator).