Kathmandu. The latest data from banking and financial institutions shows that with the expansion of the size of the banking system, the quality risk is increasing rapidly. The bad loans of these institutions have reached more than 5 percent. This shows the high rate of non-performing loans. <\/p>\n
The most worrisome aspect is that the bad loan rate has reached 5.42 percent. This situation is also high in the international system. A non-performing loan (NPL) rate above 5 per cent is considered a high risk level. <\/p>\n
The fact that the NPAs of Class C finance companies in Nepal has reached 11.86 percent is a serious sign for financial stability. The 5.26 percent bad loan rate of ‘A’ class commercial banks and 5.75 percent of ‘B’ class development banks shows that systemic risk is spreading. <\/p>\n
It has to set aside 5.83 percent of the total loan to manage the loan loss. This has put direct pressure on banks’ profitability, capital adequacy and ability to disburse new loans. <\/p>\n
The ratio of deposits to GDP stood at 126.47 per cent and the loan ratio stood at 94.86 per cent. On the surface, this may seem like an indication of financial depth, but the quality of credit and sectoral distribution have exposed structural imbalances. <\/p>\n
Currently, the total deposit in the banking system stands at Rs 7723.99 billion and the total loan disbursement stands at Rs 5.791 trillion. The CD ratio is 74.29 percent. <\/p>\n
Although the problem of liquidity shortage is not immediately visible, banks have gone into risk mitigation mode due to the deterioration of loan quality. Although the total capital to risk-weighted assets ratio of 12.57 percent is above the regulatory minimum, rising NPAs may increase the risk of capital erosion in the future. <\/p>\n
The root cause of bad loans seems to be linked to the debt structure and the weak production base of the economy. According to the data, consumer loans have reached Rs 1,261.29 billion. This is more than three and a half times the amount of Rs 354.79 billion allocated to the agriculture and forestry sector. This confirms that the banking is focused on credit consumption and import-oriented activities. <\/p>\n
Wholesale and retail trade credit has reached Rs 1040.01 crore and is also a continuation of this trend. The total loan in the agriculture, forestry, beverage and non-food production sectors is limited to Rs 965.25 billion. <\/p>\n
When credit is more focused on import-based trade and consumption, it increases cyclical risk without generating long-term income. When there is an economic slowdown, the cash flow of such sectors is affected quickly and the repayment capacity of the borrowers decreases. <\/p>\n
At present, the weakening of the cash flow cycle in the market and the decline in the income of borrowers are seen as the main reason for the increase in bad loans. Despite historically low interest rates of 3.56 per cent on deposits and 7.12 per cent on loans, the lack of demand for credit in the productive sector indicates that investment morale is weak. <\/p>\n
Fixed deposits constitute 42.56 per cent and savings deposit 41.08 per cent. This shows that banks have sufficient resources, but credit flow has been cautious due to lack of quality projects and high risk. If the bad loan rate increases further, the banks will have to set aside more provisions. This can put pressure on the capital adequacy ratio and shrink the credit expansion. This can be seen as an early sign of a ‘credit crunch’. <\/p>\n
Provincial imbalances in access to finance have also increased the risk. There are 2,279 branches in Bagmati Province while Karnali State has 243 branches. Bagmati has 2,684 population per branch while Karnali has 6,948 population per branch. Such imbalances can lead to informal credit flow and risky lending behavior, limiting access to formal financial services.<\/p>\n","protected":false},"excerpt":{"rendered":"
Kathmandu. The latest data from banking and financial institutions shows that with the expansion of the size of the banking system, the quality risk is increasing rapidly. The bad loans of these institutions have reached more than 5 percent. This shows the high rate of non-performing loans. The most worrisome aspect is that the bad […]<\/p>\n","protected":false},"author":16,"featured_media":221314,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45117,45031,45159],"tags":[],"class_list":["post-288116","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bank-finance-en","category-banner-news-en","category-news-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/288116","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/comments?post=288116"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/288116\/revisions"}],"predecessor-version":[{"id":288117,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/288116\/revisions\/288117"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/221314"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=288116"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=288116"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=288116"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}