NRB turns flexible allowing the banks to issue more loans to bad debtors

Published On: July 2, 2023 08:30 AM NPT By: RAJESH KHANAL

KATHMANDU, July 2: Nepal Rastra Bank (NRB) seems flexible to consider restructuring loans taken by the business entity amid rise in cases of loan defaulting that have led the banks to face increasing bad debts.

Banks are reported to have faced non-performing loans (NPL) at around five percent, which is likely to escalate further. Citing the situation, the central bank has started looking for effective credit management for safe landing, according to the officials of the NRB.

As of the recent financial report of the banks, they have an average of 3.03 percent NPL. Himalayan Bank Limited has the NPL of 4.56 percent, the largest of all.

When the NPL of banks increases, they have to increase the risk weightage amount that could impose pressure on the capital adequacy in the long run. “As the higher NPL can bring in serious financial problems, the central bank has started showing serious concerns over taming the performance indicator of the financial sector,” the source said.

Of late, banks have been overwhelmed with a surge in liquidity with them. However, the amount of bad debt has also been rising, perhaps with the economic slowdown that the country has been facing at present. “In this regard, the NRB is allowing banks to issue new loans to debtors to help them settle their old loans,” the source said.

Due to worsening financial sector performance and increasing pressure from the International Monetary Fund (IMF), the central bank is reported to have stepped up the measures. Stating the abnormal NPL of the Nepali banks, the IMF has been raising its concern over the functioning of the Nepali financial sector. According to a study report of the IMF, Nepal could have up to 92 percent of ‘credit greenery’ if the trend of NPL keeps increasing.

The NRB has capped the working capital loans given to entrepreneurs citing the cases of credit greenery. The entrepreneurs have long been demanding the NRB to revoke its decision. The central bank that has been reluctant to address the demand of businessmen is now flexible for refinance and rescheduling of loans.