Kathmandu. The annual report of the Bank Supervision Department recently released by Nepal Rastra Bank (NRB) has depicted the inside and real picture of the banking sector in a very frightening manner. <\/p>\n
On the surface, even though the banks appear to be profitable, the pressure of bad loans internally, the lack of corporate governance, and the manipulation of depositors’ money have put a question mark on the overall financial stability. During the central bank’s close inspection, the opaque methods used by the banks to make the financial statements appear attractive and the serious holes in the internal control system indicated that the big crash could happen at any time. <\/p>\n
As a result of the slowdown in the external economy and aggressive credit expansion, the bad loans of the banks are now at an all-time high. The tendency to hide rather than manage it has allowed the risk to pile up. <\/p>\n
‘Loan Evergreening’ is seen as the biggest disease in the banking sector. Where banks have been repaying old loans by issuing new loans in collusion with borrowers to make bad loans look good. The report makes it clear that such paper games are especially used to settle the balance sheet at the end of the quarter. <\/p>\n
This practice, which is aimed at under-reporting the ratio of bad loans without accurately analysing the business capacity and cash flow of the borrower, completely obscures the real quality of the banks’ assets. As a result, the burden of provisioning on the banks has been artificially reduced, and on the other hand, the real pressure on the capital fund has not been allowed to come out. This has obscured the real health of banks from the eyes of the public and regulators. <\/p>\n
The irresponsibility displayed by the banks in the aspect of corporate governance and internal management is even more surprising. The system of ‘check and balance’ in the bank has been destroyed due to the practice of the Chief Executive Officer (CEO) evaluating the performance of sensitive posts such as the ‘Chief Risk Officer’ and the internal auditor who are supposed to work independently within the bank. <\/p>\n
Under pressure from business targets and deposit collection, even the minimum standards of risk control have been flouted. According to the report, when more than 100 agendas are taken up for discussion at the meeting of the board of directors of the bank, the directors do not get enough time on important financial indicators related to the future and risks of the bank, and decisions are limited to mere formalities. As a result, the bank’s leadership seems to be insensitive to risk. <\/p>\n
On the other hand, the apathy shown in monitoring the utilization of loans by banks has also fuelled financial crimes. The NRB has found many instances where the amount goes directly to the accounts of the directors or their related firms and individuals as soon as the loan is approved by the bank. According to the provisions of the Bank and Financial Institutions Act (BAFIA), banks are reluctant to invest in information systems and monitoring mechanisms to track where the loans are utilized. <\/p>\n
In most banks, the loan review process is limited to paper formalities. As a result, there is a risk that billions of rupees flowing from public deposits will end up in the wrong hands and will be spent in unproductive sectors. <\/p>\n
The audit department, which is the backbone of the internal control system, is also found to be in a critical condition. Even the big banks are conducting internal audits on the basis of interns instead of hiring permanent and experienced employees. Due to the lack of skilled manpower, thousands of arrears have piled up in the bank and the mandatory policy and information technology audits are in limbo. <\/p>\n
Similarly, there is extreme negligence in the management of employees. Incidents of internal collusion and fraud have flourished as employees working in sensitive departments have not been transferred for decades, and banks have been saving the mandatory budget for the professional development and training of the employees without spending it to increase profit. This threatens to lead to a lack of bank success planning in the future. <\/p>\n
In the field of physical and technical security, the negligence adopted by the banks is not excusable. Even in this digital age, ‘Windows 7’ software, which is considered very risky in terms of security, is being used in the ATM booths of Nepali banks. Which can be an easy target for hackers. <\/p>\n
Similarly, it has been found that a single person keeps the keys and operates the treasury in violation of the ‘Four-I’ principle that is mandatory for the security of the bank’s treasury. <\/p>\n
Some banks have not even found the 90-day CCTV backup that should have been kept in sensitive areas, which means there is no evidence of any untoward incident. At the same time, widespread errors in the name, ID and PAN number of borrowers in the data submitted to the regulatory body have added challenges to the identification of large borrowers and monitoring of the single customer credit limit. All these anomalies have made it clear that there is a need for strong intervention by the Rastra Bank and a radical change in the banks for the reform of the banking sector in Nepal.<\/p>\n","protected":false},"excerpt":{"rendered":"
Kathmandu. The annual report of the Bank Supervision Department recently released by Nepal Rastra Bank (NRB) has depicted the inside and real picture of the banking sector in a very frightening manner. On the surface, even though the banks appear to be profitable, the pressure of bad loans internally, the lack of corporate governance, and […]<\/p>\n","protected":false},"author":16,"featured_media":303469,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45117,45031,45159],"tags":[],"class_list":["post-303475","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\/303475","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=303475"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/303475\/revisions"}],"predecessor-version":[{"id":303476,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/303475\/revisions\/303476"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/303469"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=303475"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=303475"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=303475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}