Kathmandu. The big commercial banks are under the biggest policy and financial pressure right now. Nepal Rastra Bank (NRB) had conducted a loan portfolio review (LPR) of 10 commercial banks in Nepal as part of the International Monetary Fund’s (IMF) Extended Credit Facility (ECF). As the report of the inquiry moves into the implementation phase, a real and very challenging picture of the financial condition of the banks has emerged. <\/p>\n
The Nepal Rastra Bank (NRB) had decided to carry out a micro-inspection of these 10 banks based on the details of mid-April 2081. Howlader Yunus & Co., a well-known auditor firm of Bangladesh, was selected for this task. <\/p>\n
The report prepared by the company after inspecting the ‘onsite’ and ‘offsite’ of the banks has now been approved by the board of directors of the Nepal Rastra Bank and is moving towards implementation. Due to the shortcomings pointed out by this report, the last fiscal year 2082. Banks are under great stress as they prepare to publish their final financial statements for the financial year 83. <\/p>\n
In the report, it has been said that there is a big problem in the loan investment that banks have been showing for years. According to sources, after this review, the non-performing loans (bad loans) of 10 banks are expected to increase by more than 2 percentage points. The most serious thing is that these 10 banks alone have to allocate an additional Rs 50 billion in loan loss provisions. A provision is a mandatory amount that a bank has to set aside from its profit to protect the deposits of the general public if the loan is not repaid. <\/p>\n
The additional provision of Rs 50 billion is sure to directly affect the net profit of the banks. As a result, most of the big banks are unable to distribute dividends to their shareholders this year. For some banks, the accumulated losses will increase further and the capital fund (minimum capital required to operate the bank) will also be under pressure. Sources claim that the problem is very severe in half a dozen out of 10 banks. According to the report, a single bank has to make an additional provision of Rs 5 to 6 billion. <\/p>\n
To avoid this financial crisis, banks are now lobbying intensely with the Rastra Bank. They have demanded that the deadline be extended saying that showing the provision of Rs 50 billion in the details of mid-July will disturb the capital fund ratio and send a negative message to the market. The banks have proposed \u2013 “We will make a provision of a certain percentage in June and we will make a provision by distributing the remaining amount in different quarters of the current fiscal year.” \u2019<\/p>\n
However, the officials of the Rastra Bank have been very strict this time. According to NRB sources, the negligence in loan classification and provision of banks cannot be exempted just to show profit. “Bad loans will not be allowed to be hidden just for the sake of distributing dividends by showing profit,” said an official of the NRB. <\/p>\n
However, the central bank has indicated that it may be flexible in some technical indicators published to avoid panic among depositors when bad financial indicators are released, but has taken a stand that it will not compromise on the amount of provisions. <\/p>\n
Although the loan recovery of banks in mid-July is the best in the last 4 years, this LPR report has badly tarnished the real health of the banks. Some banks have expressed their dissatisfaction with the Nepal Rastra Bank, saying that they cannot make additional provisions. This review, conducted with the involvement of foreign institutions, has brought to the surface the real situation of bad loans that have been hidden for years in the Nepali banking sector. It is believed that this will make the banking system transparent in the long run, even if it shocks banks and investors in the short term.<\/p>\n","protected":false},"excerpt":{"rendered":"
Kathmandu. The big commercial banks are under the biggest policy and financial pressure right now. Nepal Rastra Bank (NRB) had conducted a loan portfolio review (LPR) of 10 commercial banks in Nepal as part of the International Monetary Fund’s (IMF) Extended Credit Facility (ECF). As the report of the inquiry moves into the implementation phase, […]<\/p>\n","protected":false},"author":16,"featured_media":309754,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45117,45031,45159],"tags":[],"class_list":["post-309783","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\/309783","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=309783"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/309783\/revisions"}],"predecessor-version":[{"id":309784,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/309783\/revisions\/309784"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/309754"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=309783"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=309783"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=309783"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}