Kathmandu, Oct. 16 -- Credit disbursement by banks and financial institutions picked up sharply in the first quarter of the current fiscal year, but Nepal's banking system continues to sit on a massive surplus of loanable funds, reflecting weak credit absorption despite strong deposit growth.

Nepal Rastra Bank data show that banks and financial institutions extended an additional Rs133 billion in credit between July 17 and October 11, more than four times the Rs30 billion increase recorded during the same period last fiscal year.

However, bankers and financial analysts caution that the surge does not necessarily signal a broad-based economic recovery. Much of the increase appears to be driven by higher import costs, a stronger US dollar...