Agricultural Development Bank Expands Investment Beyond Agriculture

24th August 2025, Kathmandu

During an interactive session at the ongoing NADA Auto Show 2025 in Kathmandu, Govinda Gurung, the Chief Executive Officer of Agricultural Development Bank Limited (ADBL), made significant remarks regarding the bank’s evolving credit strategy.

ADBL Expands Investment

While reaffirming ADBL’s traditional role and continued prioritization of the agricultural sector, he highlighted the bank’s active investment in diversifying its loan portfolio. The session, which was jointly organized by the Nepal Association of Financial Journalists (NAFIJ) and the NADA Automobiles Association of Nepal, centered on the theme “Stability in Credit Policy: Foundation for the Long-Term Development of the Automobile Market.” This engagement underscores a crucial shift in ADBL’s business model, balancing its historic mandate with a modern approach to financial stability.

Strategic Diversification of the Loan Portfolio

CEO Gurung explained that ADBL’s diversification strategy is a deliberate effort to ensure sustained financial stability and growth. Although agriculture remains the central focus, the bank has been consistently increasing its investment in other sectors of Nepal’s economy, including the automobile market. As a clear sign of this commitment, he noted that ADBL had even participated with its own stall at last year’s NADA Auto Show. This active involvement shows the bank’s dedication to supporting automobile financing and reflects a broader strategic initiative to expand into diverse sectors, thereby reducing concentration risk and fostering a more balanced portfolio.

Insights into Credit Performance and Risk Assessment

Gurung provided an insightful analysis of loan performance, highlighting the remarkable stability of the automobile sector. He pointed out that compared to other industries, automobile loans have a significantly lower rate of non-performing loans (NPLs). This is a critical finding, as it indicates that lending to the automobile sector is a secure and stable investment area for banks.

He elaborated on the factors that banks consider when evaluating loan applications for vehicle purchases. According to Gurung, a thorough assessment is made of both the consumer’s perception of a particular vehicle brand and the borrower’s overall financial capacity. He further distinguished between the risk profiles of different vehicle types:

• Commercial vehicles: These loans are considered higher-risk due to the inherent uncertainties of business returns. Banks are cautious because the repayment is directly tied to a business’s success, which can fluctuate.
• Private vehicles: These loans are associated with comparatively less risk. This is primarily because borrowers often pledge personal property as collateral, which provides an additional layer of security for the bank, safeguarding the loan against potential defaults.

This nuanced approach to risk assessment allows ADBL to tailor its lending practices and maintain the high quality of its loan portfolio.

Loan-to-Value (LTV) Ratios

The CEO also touched upon international lending practices by explaining the concept of the Loan-to-Value (LTV) ratio. The LTV ratio determines the maximum amount a bank can finance for a vehicle’s cost compared to the borrower’s own contribution. Gurung stated that this ratio is not uniform and varies from country to country based on local regulations and market conditions.

More importantly, he highlighted that even within Nepal, the LTV ratio is different for commercial and private vehicles. This variation directly reflects the distinct risk profiles associated with each category. A higher LTV for a low-risk private vehicle, for instance, encourages consumer spending, while a more conservative LTV for a high-risk commercial vehicle helps the bank mitigate its exposure. This customized lending policy is essential for responsible and secure credit flow.

Broader Economic Significance

ADBL’s strategic diversification is not just an internal business decision; it has broader implications for Nepal’s economy. By extending credit to sectors like the automobile industry, the bank contributes significantly to:

• Market Expansion: It provides the necessary capital for the growth of the automobile market, which in turn fuels related industries.
• Employment Generation: The expansion of the automobile market creates a ripple effect, leading to new employment opportunities in sales, repairs, maintenance, and other related services.
• Modernization and Accessibility: It increases access for both individuals and businesses to modern transportation solutions, which can improve logistics, productivity, and overall quality of life.

This diversification strategy demonstrates that while agriculture will always remain a vital pillar of Nepal’s economy, expanding investment into other sectors provides a critical pathway for sustainable development and reduces the overall risk exposure of the financial system.

Conclusion

CEO Govinda Gurung’s remarks at the NADA Auto Show 2025 underscored a progressive vision for Agricultural Development Bank Limited. He clearly articulated the bank’s strategy of balancing its foundational role in agricultural financing with a proactive approach to investing in other key sectors, particularly the automobile market. By embracing portfolio diversification, maintaining a stable flow of loans, and applying prudent risk assessment, ADBL is playing a crucial role in strengthening Nepal’s financial sector and supporting long-term economic growth. The bank’s recognition of the stability and promise of the automobile industry, coupled with its commitment to contributing to its expansion, signifies a forward-looking strategy that benefits not just the institution but also the entire economy.

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