Nepal Rastra Bank’s Financial Stability Report FY 2022/23: Insights on Economic Resilience and Regulatory Measures

Nepal Rastra Bank's Financial Stability
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19 June 2024, Kathmandu

The Nepal Rastra Bank (NRB) has published its fifteenth Financial Stability Report, covering the fiscal year 2022–23.

This comprehensive report provides an in-depth analysis of the Nepalese financial sector, highlighting key developments, challenges, and regulatory measures undertaken to maintain financial stability.

Nepal Rastra Bank’s Financial Stability Report

Global Economic Context

The report notes the significant impact of global geopolitical unrest, high inflation, and elevated debt levels on financial stability worldwide. Central banks globally faced a challenging trade-off between stimulating economic growth and controlling inflation, leading to record-high interest rates. While inflation has started to stabilize, economic activity remains subdued.

Domestic Economic Performance

Nepal’s economy mirrored global trends, grappling with inflationary pressures, balance of payments deficits, and dwindling foreign exchange reserves at the beginning of the fiscal year. The NRB and the Government of Nepal implemented macroprudential regulations to address these issues, resulting in notable improvements in economic indicators by the end of the review period. Key highlights include:

Economic Growth: The GDP growth rate stood at 2.31%, reflecting cautious optimism amid global uncertainties.

Inflation: The average consumer price inflation rose to 7.7%.

Trade Deficit: A 15.5% reduction in the trade deficit to Rs. 1454.59 billion.

Balance of Payments: A surplus of Rs. 290.5 billion, reversing the previous year’s deficit of Rs. 255.3 billion.

Banking and Financial Institutions

The number of banks and financial institutions (BFIs) decreased due to mergers and consolidations promoted by the NRB. As of mid-July 2023, there were 112 BFIs, including 20 commercial banks, 17 development banks, 17 finance companies, 57 microfinance institutions, and 1 infrastructure development bank. Despite challenges, the domestic financial system remained sound and resilient, with BFIs demonstrating strong capital adequacy, liquidity, and leverage ratios.

Key Concerns and Regulatory Measures

The report highlights concerns over asset quality deterioration but commends the robustness of the banking system in absorbing risks. The NRB emphasizes the need for proactive and prudent banking regulations to sustain financial stability and support economic growth.

Conclusion

Governor Maha Prasad Adhikari expressed optimism about the resilience of Nepal’s economy and financial system. He acknowledged the efforts of the Financial Stability Oversight Committee and the Financial Stability Sub-committee in producing this critical publication. The report is expected to serve as a valuable resource for understanding the overall financial stability of Nepal.

For further details, see Nepal Rastra Bank’s Financial Stability Report.


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