KATHMANDU, July 29: Banks are struggling to recover loans as borrowers fail to repay on time and pledged properties, including land and buildings, remain unsold. Bankers say even after repeated visits by bank staff to borrowers' homes and offices, many continue to delay repayments by citing various excuses.
The challenge has also become a security concern after incidents in which bank employees attempting to recover loans were assaulted.
Despite repeated public notices and other efforts to auction collateral after borrowers’ default, banks have failed to recover many bad loans. As a result, unsold collateral has accumulated as non-banking assets, making bad loan management increasingly difficult, according to bankers.
Data released by the Nepal Rastra Bank for the fiscal year 2025/26 shows that the combined non-banking assets of Nepal's 20 commercial banks exceeded Rs 46.80 billion. This represents an 18.89 percent increase from the previous fiscal year.
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Bankers and industry experts say the steady rise in non-banking assets reflects deeper problems in the banking system and could significantly weaken banks' lending capacity. They argue that borrowers' inability to repay principal and interest, combined with banks' failure to sell collateral, highlights the prolonged economic slowdown. Unless economic activity and the property market improve, banks are likely to carry an even heavier burden of unproductive assets on their balance sheets.
According to the central bank, commercial banks held Rs 38.79 billion in non-banking assets in fiscal year 2024/25. The figure increased by Rs 8.10 billion within a year.
Banks have repeatedly sought policy support from the government and appealed to the central bank, but have made little progress in resolving long standing bad loans. When auctioned collateral attracts no buyers, banks are forced to take ownership of the pledged assets, whether land, buildings or other movable and immovable property. These assets are classified as non-banking assets. As they accumulate, banks' capital remains tied up in non-productive holdings, reducing profitability and putting pressure on liquidity.
Among commercial banks, Himalayan Bank holds the largest volume of non-banking assets at Rs 6.24 billion. It is followed by Global IME Bank with Rs 5.89 billion and Nepal Investment Mega Bank with Rs 4.70 billion.
Other major holders include NIC Asia Bank with Rs 4.18 billion, Nabil Bank with Rs 3.38 billion, Kumari Bank with Rs 2.45 billion, Laxmi Sunrise Bank with Rs 2.44 billion and NMB Bank with Rs 2.01 billion.
Among state owned lenders, Agricultural Development Bank holds Rs 1.38 billion in non-banking assets, while Nepal Bank holds Rs 233.6 million and Rastriya Banijya Bank holds Rs 310.4 million. The figures show that banks continue to face rising pressure from bad loans and collateral management.
During the review period, Standard Chartered Bank Nepal was the only commercial bank to maintain zero non-banking assets. Every other commercial bank reported a growing stock of repossessed collateral.
The slowdown in real estate transactions, the stock market, infrastructure development and the construction sector, both in the Kathmandu Valley and across the country, has made it difficult for banks to sell auctioned collateral.
Bankers warn that holding such assets for a long period not only deprives banks of interest income but also requires them to set aside additional provisions against potential losses. This reduces earnings per share and weakens their ability to distribute dividends.
Bhuwan Dahal, former president of the Nepal Bankers' Association, said banks are facing severe difficulties recovering collateral backed loans despite trying various measures. He added that bad loan recovery has become even more difficult this year than in previous years.
According to Nepal Rastra Bank, banks and financial institutions are required to dispose of non-banking assets as quickly as possible and convert them into cash instead of retaining them for regular business operations. Although banks have been making every effort to recover bad loans in line with central bank regulations, they have achieved only limited success.
