Kathmandu: Nepal Rastra Bank (NRB), the country’s central bank, has introduced a new framework requiring domestically systemically important banks (D-SIBs) — institutions considered “too big to fail” — to hold additional capital of between 0.2 percent and 1 percent on top of existing requirements.
The long-awaited Domestic Systemically Important Bank (D-SIB) Framework 2025 finally puts into practice recommendations from the Basel Committee on Banking Supervision that date back 14 years, as well as a commitment made in NRB’s own monetary policy for fiscal year 2015/16 (2072/73 BS).
The move comes in response to lessons learned from the 2008 global financial crisis and brings Nepal in line with international standards aimed at preventing any single bank from threatening the entire financial system.
Under the new rules, NRB will identify D-SIBs using an indicator-based approach that measures four key factors: size of the bank (40 percent weight), interconnectedness with other financial institutions (30 percent weight), substitutability — how easily the bank’s services could be replaced if it failed (15 percent weight), and complexity of its business and cross-border activities (15 percent weight).
These indicators assess total exposures, assets and liabilities within the financial system, the bank’s role in payment systems, and involvement in trading and cross-border transactions.
Based on the final systemic importance score, NRB can require affected banks to maintain Higher Loss Absorbency (HLA) capital ranging from 0.20 percent to 1 percent of risk-weighted assets. This extra buffer strengthens a bank’s ability to absorb losses during crises. The additional capital requirement will come into effect starting 2027.
The framework also gives the central bank supervisory powers to impose further measures if needed.
By forcing the largest and most interconnected banks to hold more capital, NRB aims to reduce contagion risk — the danger of one bank’s problems spreading rapidly across the system — while aligning domestic regulation with global best practices. This is the first time Nepal has formally identified and imposed tougher rules on domestically systemically important banks.
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