The non-performing loans (NPLs) of Nepal’s commercial banks have increased by a notable ratio in the first nine months of the current fiscal year.
According to the third quarterly financial reports published by 21 commercial banks, their average non-performing loans (NPLs) stood at Rs 130 billion, a 3.02 percent of their total loan amounts. As of mid-January, the figure was 2.63 percent.
The NPLs of Nepal’s banking system was only 1.16 percent as of mid-July 2022. Citing the low NPLs of the country’s banks and financial institutions (BFIs), the World Bank in its report published in October had also appreciated the Nepali banking system for maintaining the NPLs at lower side when the BFIs of many other countries struggled to maintain their financial health.
The ratio of non-performing loans to the total loan measures the health and efficiency of the bank by identifying problems with asset quality in the loan portfolio. Lower the value of NPLs, lesser will be the financial risk to the BFIs.
According to bankers, the economic slowdown that took place in the past nine months has led to a significant rise in the NPLs of Nepal’s BFIs. Of the 21 banks, only four have their NPLs less than one percent. These include Standard Chartered Bank, Nepal SBI Bank, NIC Asia Bank and Everest Bank.
Himalayan Bank is reeling under the highest NPLs. The bank’s ratio of bad debts surged to 4.56 percent from 0.99 percent in the past one year. Over the period, the NPLs of Agriculture Development Bank increased from 2.32 percent to 4.35 percent. Similarly, the NPLs of Nepal Bank Limited increased from 2.06 percent to 4.16 percent.
Likewise, the NPLs of Rastriya Banijya Bank reached 3.88 percent, Nabil Bank 3.87 percent, Sunrise Bank 3.62 percent, Prabhu Bank 3.48 percent and that of Prime Commercial Bank reached 3.06 percent.
Based on the period of the overdue of the loans issued by the banks, Nepal Rastra Bank has categorized NPLs as sub-standard, doubtful and bad loans. The substandard loans are those loans whose interest and principal payments are due up to six months. The doubtful loans are those in which payments remain due for six months to one year, while the overdue period is more than one year in case of bad loans.
For the substandard loans, the BFIs have to maintain 25 percent of the amount in the provisioning. In case of doubtful loans, the provisioning amount is 50 percent, while for the bad debts, banks need to maintain a cent percent amount in provisioning.
