Kathmandu — “Made in China: here today, gone tomorrow.” This popular saying in Nepal’s marketplaces is now proving true in the banking sector. One of Nepal’s largest private banks, Nabil Bank, has found itself entangled in a high-stakes financial and legal mess due to what insiders are calling blind trust in a Chinese bank.

The controversy stems from the Upper Trishuli-3B Hydropower Project, where the Chinese contractor Shuifa ANHE Group had pledged to complete the project within three years. Yet, even after six years, progress stood at only 66 percent. Frustrated by the delay, the project developer — Trishuli Jal Vidyut Company (TJVC), a joint venture between the Nepal Electricity Authority (NEA) and Nepal Telecom — terminated the contract last December and moved to encash the Chinese contractor’s performance guarantee through Nabil Bank.

That’s when the real problem began. The China Everbright Bank, which had issued a counter-guarantee for the Chinese contractor, refused to release the payment after a local court in Sichuan, China, ordered the amount to be frozen. As a result, Nabil Bank could not disburse the equivalent of Rs 1 billion (US$7.44 million) to the Nepali project and has been forced to keep the amount under loan-loss provisioning.

Former Deputy CEO (now CEO) Manoj Kumar Gyawali of Nabil Bank confirmed the complication:

“Trishuli Jal Vidyut Company has filed its claim, but a Chinese court order has halted the payment process.”

TJVC CEO Ananda Dhungel, visibly frustrated by the prolonged delay, said,

“It’s been over 50 days since we requested Nabil Bank to release the payment. Laxmi Sunrise Bank, which handled the local currency guarantee, cleared it immediately. But Nabil is still delaying.”

Dhungel emphasized that the dispute with the Chinese bank should not affect a Nepali institution’s responsibility.

“We have no relation with the Chinese bank. Nabil must pay first and settle its counterclaim later. We have even written to the Nepal Rastra Bank (the central bank) urging intervention,” he said.

This is not the first time Nepal’s banking system has been caught in such a trap. A similar episode occurred during the Melamchi Water Supply Project, where the Chinese contractor China Railway 15 Bureau Group and the China Construction Bank locked Himalayan Bank and the erstwhile Bank of Kathmandu in a decade-long legal battle. Both Nepali banks were unable to release around US$13 million in bank guarantees, and it took until 2022 for a Chinese court to finally rule in their favor.

Now, Nabil Bank appears to be caught in a near-identical “Melamchi model” crisis — where Chinese contractors abandon projects, run to local Chinese courts, and use the legal system to freeze payments. Legal expert Gandhi Pandit, who has represented Nepali banks in such cases, warns,

“When dealing with foreign banks, Nepali institutions must rigorously check their track records. The lack of transparency and unpredictability in the Chinese banking and legal systems have already shown red flags.”

The dispute not only exposes managerial lapses at Nabil Bank but also raises deeper concerns about Nepal’s financial sovereignty. Allowing a foreign court to control payments tied to Nepali development projects poses a strategic risk, experts say. The Nepal Rastra Bank has previously ordered domestic banks facing similar disputes to maintain provisioning reserves equivalent to the disputed amount — a move that cuts into profits and limits investment capacity.

As of now, about 70 percent of the Trishuli project is reportedly complete. The remaining work is expected to be retendered soon, but with the legal battle now hanging in a Chinese court, further delays seem inevitable.

Despite repeated lessons from past experiences, Nepali banks continue to sign contracts with Chinese firms without robust risk assessment. Experts caution that blind trust in Chinese banks and companies under the banner of “foreign investment” is fast turning into a form of economic self-sabotage.

At its core, this dispute is more than a banking technicality — it’s a test of Nepal’s financial independence and public trust in its institutions. When a foreign court can freeze billions in Nepali depositors’ money, the question looms larger than ever: who truly controls Nepal’s economic destiny?

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Editorial Note:

This story was originally published on January 7, 2025, and has been republished in the public interest due to its ongoing relevance and implications.