Nepal Rastra Bank (NRB) has shown its concerns regarding the commercial banks’ financial reports for the fiscal year 2024/25. The central bank has suspected that there is possible manipulation in their reports. Because of this, the NRB granted approval to only eight out of 20 commercial banks to hold their annual general meetings so far. The fact that the central bank is hesitating demonstrates that it is not sure whether the data presented by banks is correct, particularly in terms of provisioning as well as asset quality. According to officials of NRB, several banks have failed to set aside mandatory provisions, and for this reason, the central bank has taken a zero-tolerance policy. According to NRB’s norms, banks have to hold a provision amount for a percentage of their loans, depending upon whether they have been repaid by the customers. The longer they default, the higher is this provision amount for them. Banks get to repay this amount as soon as they get repaid by customers, after which they distribute this amount as dividend to shareholders in the form of dividend declaration.
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According to banks, they have increased the provisions by Rs 11 billion this year, which shows they have a strong financial condition to announce dividend, but according to NRB’s analysis, banks’ story is different altogether because NPLs have gone up to an average of 4.86 percent from 4.04 percent in the previous year, and an amount of Rs 15 billion has been increased in non-banking assets to Rs 50.55 billion. This has led to several questions about reporting standards in the commercial bank sector itself. Banks have strong desires and motivations to promote financial stability in order to attract investors and increase their market value. For achieving this, they may exaggerate or manipulate financial reports regarding their profitability and may hide data reflecting bad loans. Needless to say, this will have an adverse effect upon financial stability itself. Whenever the central banks introduce stricter reporting processes to correct this trend of misinformation, the situation becomes clearer to us. This may be the reason that the central bank did not allow most of the banks to hold their AGMs so that they cannot present manipulated numbers and figures to influence investors.
The NRB’s challenge also stems from the way commercial banks handle regulatory standards. Some banks like to play with accounting flexibility, using grey areas to lower their provisioning or delay recognizing bad loans. Meanwhile, others might be too eager to restructure loans, hiding the real problems. Although this can seem like a quick solution, it really damages the trustworthiness of the whole sector. The central bank's involvement, therefore, is no longer only as a regulator but also as a financial guardian. For regaining confidence, NRB needs to intensify its supervision work, passing beyond compliance verification. Implementing real-time monitoring, conducting surprise audits, and enforcing tougher penalties for inaccurate reporting could motivate banks to share truthful figures. At the same time, banks need a transparent review process from the NRB, ensuring that both banks and the public understand the factors that guide their decisions. Finally, the financial sector's stability is dependent on the NRB's commitment to maintaining reliable bank reporting that must include true facts and figures.
