KATHMANDU, April 27: Nepal Rastra Bank (NRB) has pointed out increasing non-performing loans (NPL) and accumulation of non-banking assets as the main challenge of the country’s banking system.
Unveiling the Annual Bank Supervision Report, the NRB has stated that the increasing NPL in Nepali banks have exerted pressure on their capital adequacy ratio. “Given the heavy depletion of the assets quality of a number of banks, they are likely to face problems in their financial stability,” reads the NRB’s report. “In order to assure financial stability, the banks are needed to adopt stern risk management measures along with strengthening their capital adequacy fund.”
Speaking at a program organized to mark the 70th anniversary of the NRB on Sunday, Acting NRB Governor Neelam Dhungana Timsina also said that the inadequate issuance of loans to the private sector and low capital expenditure are the major challenges of the Nepalese economy at present. “Despite a heavy plunge in interest rates, the private sector lending has not improved by a notable amount, while the under construction projects have been unable to come online on stipulated time,” Dhungana said.
Lending slows as banks focus on recovery of loans at fiscal yea...
Until the end of the fiscal year 2023/24, Nepal’s commercial banks had an average capital adequacy ratio of 12.84 percent while the primary capital adequacy stood at 10.10 percent. Banks have struggled to maintain the figure within the regulatory thresholds of 10 percent and six percent respectively.
The banks’ lending has been lacklustre for the past three years, whereas they have been facing excess liquidity problems since the last two years.
Attributing to the ongoing economic slowdown, banks have been reluctant to provide loans to the private sector. As a result, the growth rate of loan issuance by banks stood at a mere six percent in the last fiscal year, which was far below the annual average of 18 percent in the past one decade, according to the report.
There has been a significant rise in cases of banking offenses which include uses of poor quality collateral to take loans, misuse of loans and submission of fake financial reports to take loans through alleged involvement of borrowers and staff, management and board members of the banks. The central bank has stressed the need for strengthening good governance practices and promoting transparency in the banking business to address the aforementioned challenges.
At a time when banks have been facilitating the use of digital banking channels in their operations, it has given rise to increased risks in financial transactions. Expansion in awareness for digital financial literacy and capacity building of bankers and employees of the payment system operators could help minimize the technology created risks in the segment, according to the NRB report.
