KATHMANDU, Nov 13: Nepal Rastra Bank (NRB) has become skeptical towards the financial reports submitted by commercial banks citing possible manipulation by the concerned banks over their financial health.
The NRB has expressed its dissatisfaction over the financial reports of the fiscal year (FY) 2024/25 submitted by commercial banks. So far this year, the central bank has given the nod to only eight commercial banks to conduct their annual general meetings (AGM).
The banks and financial institutions (BFIs) need to conclude their AGMs of the previous FY by mid-January, the end of the second quarter of the current year. As of now, 16 out of 20 commercial banks have sought NRB’s final approval for their AGM. “Of the permitted eight banks, three have already carried out their AGMs,” said an official of the NRB.
The central bank has found that some banks were found not allocating the mandatory amounts for provisioning. According to the NRB source, the central bank has adopted zero tolerance regarding provisioning amounts of the BFIs.
As per the NRB rules, BFIs have to maintain provision ranging from 1-100 percent of the amounts in outstanding loans. The more a borrower delays in repaying the loan, the larger the amount the banks have to allocate in provisioning. Once the borrowers repay the loan, the banks can write back the amount separated for provisioning, and can consider the amount for distribution to the shareholders.
As of the first quarter of the current fiscal year, the average NPL of 20 commercial banks has reached 4.86 percent, up from 4.04 percent a year ago. The banks said that they have allocated an additional amount of Rs 11 billion for provisioning in the review period of the current FY based on the regulatory norm.
Amid soaring NPLs, the banks had their non-banking assets in the last FY increased by Rs 15 billion to Rs 50.55 billion. However, the NRB is not fully convinced with the financial reports of a number of banks.
As per the unaudited reports unveiled by the commercial banks, 16 were identified as financially fit for distributing dividends to their shareholders. However, the NRB’s scrutiny is likely to wipe out a number of them from the list.