Includes special features of this country’s banking system and rules/laws that might impact U.S. business.
The NRB regulates the national banking system and also functions as the government’s central bank.  As a regulator, NRB controls foreign exchange; supervises, monitors, and governs operations of banking and non -banking financial institutions; determines interest rates for commercial loans and deposits; and also determines exchange rates of foreign currencies.  As the government’s bank, NRB maintains all government income and expenditure accounts, issues Nepali bills and treasury notes, as well as loans to the government, and determines monetary policy.

Commercial lending in Nepal is governed under the Bank and Financial Institutions Act (BAFIA) of 2017 which supercedes the earlier BAFIA of 2006, the Commercial Bank Act of 1974, and the Finance Company Act of 1985, which previously governed commercial lending.  The BAFIA authorizes the NRB to issue guidelines to all commercial banks and financial institutions on interest rates, interest ceilings, and areas of investment.

Three large state-owned banks still dominate the commercial banking sector: Rastriya Banijya Bank (National Commercial Bank), which is 100 percent government-owned, Nepal Bank Ltd., which is 40.5 percent government-owned, and the Agricultural Development Bank, also largely government-owned. Together these 3 state-owned banks still hold nearly 16% of total banking assets and total deposits in the country. The first two, in particular, also have a large number of non-performing loans.  However, private banks have an increasingly large and influential presence, and most businesses now tend to bank with the non-state banks, rather than the traditional state-owned banks.

In the 1980s, Nepal opened the commercial banking sector to foreign participation. Since then, several joint venture banks have been established including: Nabil Bank; Nepal Investment Bank; Standard Chartered Bank; State Bank of India; Bank of Kathmandu; Everest Bank; Nepal Sri Lanka Merchant Bank; Nepal Bangladesh Bank; and Nepal Bank of Ceylon, now called Nepal Credit and Commerce Bank.  As of July 2018, there were 28 commercial banks in operation, including foreign joint-venture banks, 33 development banks, and 25 finance companies.

Existing banking laws do not allow branch operation by any foreign banks. All commercial banks have correspondent banking arrangements with foreign commercial banks, which they use for transfers and payments.

In 1994, the government expanded the role of the Nepal Stock Exchange by allowing private brokers to operate. The volume of trading subsequently increased dramatically, but has since stabilized.  In 1996, the GON announced that it would permit foreign institutional investors to hold up to 25 percent of the shares of listed firms in certain sectors, such as tourism and power.

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