Nepal’s commercial banks have urged Nepal Rastra Bank (NRB) to introduce regulatory reforms allowing banks and financial institutions (BFIs) to lease or rent out non-banking assets (NBAs), arguing that a growing stock of unsold collateral has become a major financial burden amid the prolonged economic slowdown.
Under the current NRB regulations, BFIs are prohibited from generating income from fixed assets acquired after confiscating collateral from defaulting borrowers. The Nepal Bankers’ Association (NBA) has requested the central bank to amend the existing provisions so that banks can earn rental or lease income from such properties until they are sold.
Bankers have also expressed dissatisfaction over the central bank’s stringent loan-loss provisioning requirements. They argue that NRB has yet to implement its commitment, announced in the Monetary Policy for Fiscal Year 2025/26, to review the existing loan classification and provisioning framework.
According to NRB data, the value of non-banking assets held by Nepal’s commercial banks increased by Rs 7.50 billion, or 19.51 percent, during the first 10 months of the current fiscal year. As a result, the total value of these assets has climbed from Rs 38.48 billion to Rs 45.99 billion.
Non-banking assets primarily consist of land, buildings, and other properties acquired by banks after borrowers fail to repay loans. Financial institutions typically dispose of these assets through public auctions to recover outstanding loans and reverse provisions made against non-performing assets.
However, the prolonged economic slowdown has weakened the real estate market, making it increasingly difficult for banks to sell confiscated properties. As these assets remain idle and generate no income, they continue to tie up capital that could otherwise be deployed for productive lending.
The steady rise in non-banking assets also reflects broader challenges facing Nepal’s banking sector. Despite a significant decline in lending interest rates and abundant liquidity, credit demand has remained subdued, while banks continue to struggle with recovering overdue loans.
In addition to seeking greater flexibility in managing non-banking assets, the NBA has proposed several regulatory reforms. Bankers have urged the NRB to revise the methodology used to calculate the base interest rate, arguing that the existing formula no longer reflects prevailing market conditions.
They have also called on the central bank to reduce the mandatory deprived sector lending requirement from 5 percent to 4 percent, contending that the current threshold places additional pressure on banks at a time of weak credit demand.
Furthermore, the association has requested that banks be permitted to revise the risk premium on loans during the loan tenure. Under existing regulations, banks are generally unable to adjust the premium even when a borrower’s credit profile improves or deteriorates over time. Bankers argue that allowing such adjustments would enable BFIs to price credit more accurately according to changing borrower risk.
The proposals come as Nepal’s banking industry grapples with rising non-performing assets, sluggish credit expansion, and excess liquidity, prompting calls for regulatory changes to improve financial sector efficiency and profitability.
