Nepal Rastra Bank Reduces Risk Weight on Share Loans to 100% Following New Governor’s Appointment
May 26, 2025 | Investopaper
Just four days after the appointment of new governor, NRB issued the third quarterly review of the current fiscal year’s monetary policy, announcing a reduction in the risk weight on share loans from 125 percent to 100 percent. Historically, NRB’s policy on share loan risk weights has fluctuated significantly.
Since issuing integrated directives in 2010 (2067 BS), the risk weight for share-backed loans was initially set at 150 percent. It was reduced to 100 percent in 2019 (2075 BS), then increased again to 150 percent in 2022 (2078 BS) due to aggressive credit expansion post-COVID-19. Subsequent adjustments differentiated risk weights based on loan size, but the current policy reverts to a uniform 100% risk weight.
Despite the increase in share loans—up by nearly 38 percent in the first nine months of the current fiscal year compared to the previous year—there has been little positive impact on the stock market. Experts suggest that loans secured by shares may be diverted to other uses rather than direct investment in shares, partly because margin loans provided by banks do not legally require exclusive use for share purchases. This raises concerns about the effectiveness of share-backed lending in stimulating the capital market.
Additionally, NRB has tightened the Cash Reserve Ratio (CRR) compliance for banks and financial institutions. While the mandatory CRR remains at 4 percent, the minimum required daily maintenance of this reserve has increased from 70 percent to 90percent. This measure aims to improve liquidity management within the financial system by limiting banks’ practice of holding a portion of reserves as short-term deposits with NRB, thereby reducing excess liquidity and promoting financial stability.
The monetary policy review has maintained key policy rates such as the policy rate at 5 percent and the bank rate at 6.5 percent to support macroeconomic stability.
