Kathmandu. Nepal’s banking sector is currently under increasing pressure on non-performing loans (NPLs).
In the first 2 months of the current fiscal year, the problem of loan recovery at all levels of banks, development banks and finance companies has increased, according to the data. This growth has been seen as a challenge to the quality of all assets in the banking sector.
According to the NRB, a total of Rs 733.42 billion has been collected in deposits including commerce, development and finance till mid-September and loans amounting to Rs 5.617 trillion have been disbursed. Of these, an average of 4.62 percent of the loans have reached non-performing stage. This is almost one percent more than the same period of the last fiscal year. This shows that the credit quality of the banking sector is deteriorating.
The non-performing loan rate was 3.86 percent in the same period last year. Despite the increase in both deposits and loans, the NPL rate has increased due to the slowdown in loan recovery. It is worrisome that banks have not been able to improve recovery even when liquidity has eased and interest rates have come down somewhat.
According to the NRB data, commercial banks alone collected deposits of Rs 6.580 trillion and extended loans worth Rs 4.91 trillion, while 4.44 percent of the loans were non-operative. Last year, it was 3.76 percent. This confirms that risk management is becoming more challenging for commercial banks as well.
Similarly, the non-performing loans of development banks have also increased significantly. A total of 5.03 percent of the loans are non-performing as of mid-September of the current fiscal year. This is up from 3.62 percent last year. Development banks are also facing pressure due to the imbalance between the pace of loan expansion and recovery.
The highest non-performing loan rate is seen in finance companies. Their average NPL has reached 11.05 percent till mid-August of the current fiscal year. That’s close to double the previous year’s 9.87 percent. Finance companies are at greater risk as the recovery of small and middle-income borrowers is weak.
According to experts, slow loan recovery, weak investor morale and the impact of high interest rates of past loans are the main reasons for the increase in non-performing loans. This data shows that banks need to focus on improving loan recovery, debt restructuring and risk management.
Experts say that the increase in NPL rates in the banking system is not only a bad sign for financial health but also for the overall economy. This has added to the concern that it will put pressure on new credit flows, reduce private investment and have a negative impact on economic growth.
