KATHMANDU, Nov 26: Nepal Rastra Bank (NRB) has stepped up efforts to strengthen risk bearing capacity of large commercial banks with the enforcement of the ‘Framework for Dealing with Domestic Systematically Important Banks 2025’.
Under this framework, the central bank aims to maintain more supervision of those commercial banks that have been identified as contributing largely to the financial stability of the country.
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Guru Prasad Paudel, spokesperson for the NRB, said the framework will be focused on controlling systemic risks of the concerned banks. “Learning lessons from the 2008 global financial crisis, the framework is prepared to comply with the good practices implemented by Basel Committee on Banking Supervision,” said Paudel.
The regulator of the country’s financial sector has maintained four indicators to identify systematically important commercial banks. The exposure and size of financial transactions, liabilities and interconnectivity of the concerned bank with other financial institutions, importance of the bank in the country’s payment system, trading and infrastructure development, and complexities underlying in the operating system are among the major indicators set by the NRB for this purpose.
The framework mandates systematically important banks to increase their capital base by additional amounts ranging between 0.20 percent and one percent. The additional capital base is expected to enhance the banks’ loss-absorbing capacity. The banks will have to maintain the additional amount under ‘common equity tier one’ capital.
The NRB has planned to start categorizing banks through necessary data collection to be completed by August 2026. While the central bank will assign scores based on the indicators by September end, it has planned to name the banks identified as systemically important by October end of the next year. From the beginning of fiscal year 2027/28, the identified banks will be mandated to increase their capital base.
According to the NRB, identifying systematically important banks has been in practice also in the neighboring countries including India and Pakistan.
