Kathmandu. Non-banking assets have increased significantly due to the failure of banks and financial institutions to recover loans on time. The management of the banking sector has become challenging as the amount of real estate, vehicles and other assets that banks accept as collateral has increased at a huge rate in the last one year.
According to the data of Nepal Rastra Bank, the current fiscal year 2082. The non-banking assets of banks and finance companies have reached Rs 51.07 billion as of mid-November 2018. Last fiscal year 2081. Such assets were Rs 38.26 billion in the same period. Non-banking assets (NPAs) have increased by Rs 12.81 billion in the last one year.
In the same period, the average non-performing loans (NPL) of banks and finance companies have also increased. The average non-performing loan has reached 5.26 percent as of mid-November of the current fiscal year. It was only 4.42 percent in the same period of the last FY. Bankers say that non-banking assets have also increased in parallel as banks are forced to accept collateral due to the increase in non-performing loans.
Due to the sluggish economy, the ability of borrowers to repay their loans has decreased. Apart from this, bankers say that some people are not willing to repay the loan because they are expecting to be waived. Also, due to various obstacles in recovery and lack of coordination, recovery has not been done. This is putting pressure on the banking sector.
The burden of non-banking assets in commercial banks is high
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Non-banking assets (NPAs) are the highest among commercial banks. As of mid-November, the 20 commercial banks operating with an average of 5.03 percent non-performing loan amounted to Rs 43.19 billion. In the same period of the last fiscal year, the non-performing loan of commercial banks was 4.53 percent and non-banking assets were only Rs 32.33 billion. Non-banking assets of commercial banks have increased by Rs 10.85 billion in a year.
Development banks and finance companies also increased
Non-banking assets in development banks have also increased. As of mid-November, the 17 development banks have non-performing loans of an average of 6.03 percent, amounting to Rs 4.84 billion in non-banking assets. In the same period of the last FY, the non-performing loan of the development banks was 4.37 percent and the non-banking assets were Rs 3.66 billion.
The situation of finance companies has become even more challenging. As of mid-November of the current fiscal year, non-performing loans (NPAs) have reached 12.52 percent in 17 finance companies. Non-banking assets increased to Rs 3.04 billion in the same period. In the same period of the last FY, non-performing loans of finance companies stood at Rs 10.84 per cent and non-banking assets were Rs 2.26 billion.
According to experts, the increase in non-banking assets is a sign of long-term risk for the banking sector. If a bank’s capital is stuck in real estate and fixed assets, it can reduce credit expansion capacity, put pressure on profits, and complicate liquidity management.
The double-digit growth in non-banking assets in a year indicates weakness in loan recovery, mortgage management and asset sales. Experts have pointed out the need for effective management and policy reforms, saying it is difficult to sell properties through auction due to the sluggish market.
Some say that the non-banking assets have increased due to the failure of the central bank to bring policies in the past and the banks are also not responsible. They say that the problem is due to the widespread misuse of the flexible policy by the banks after the Corona epidemic. Experts believe that the problem is now due to the misuse of loans by big borrowers and their inability to repay them.
