The process of conducting a full audit of 10 major commercial banks has moved forward on the condition that the audit report will not be made public. This comes after Nepal Rastra Bank (NRB) and the International Monetary Fund (IMF) agreed to bankers’ proposal that the audit findings should remain confidential.
Bankers had long opposed a comprehensive audit by international independent auditors, fearing that it would expose weaknesses in their institutions. However, the government had initially proposed a full audit of the top 10 banks to reveal their actual condition as part of securing the IMF’s Extended Credit Facility (ECF).
Following this, the IMF approved the proposal, linking the release of loan tranches to the completion of the audits. Although Nepal received the fourth tranche, the IMF withheld the fifth installment citing the lack of a full audit of the 10 banks.
NRB then restarted the process. According to central bank sources, the second attempt also proceeded under the condition that the detailed audit reports would not be published.
First Attempt Cancelled
NRB had initially begun the audit process last year, selecting the Indian audit firm KPMG Assurance and Consulting Services LLP. However, the process was scrapped after the firm demanded what NRB described as an “unreasonable budget.”
At the time, bankers were lobbying against the audit, arguing that the economic slowdown, increased loan defaults, and excessive lending in unproductive sectors—often sustained through loan “evergreening”—would make such an audit highly damaging. The central bank also argued that the timing was not favorable for a full audit.
Second Attempt and New Auditor
After the IMF withheld a loan tranche, NRB revived the process and, during the second attempt, selected Bangladeshi audit firm Howladar Yunus & Co. This firm is expected to begin work shortly. Only a summary of the audit will be released, while the detailed report will remain confidential, consistent with IMF’s agreement.
IMF and Loan Tranches
On January 12, 2022, the IMF had approved Nepal’s Extended Credit Facility program, under which Nepal committed to various economic reforms in return for access to concessional financing of about USD 395.9 million (roughly NPR 54 billion). So far, Nepal has received about USD 331.8 million (NPR 45.45 billion). The release of the sixth tranche had been delayed pending the commencement of the full audits.
Central Bank’s Position
NRB spokesperson Kiran Pandit defended the decision not to publish the detailed reports, stating that making all internal details public could further harm the institutions. According to him, only a summary will be published, and there is no need to disclose each loan’s status. “The IMF’s intent was to review the banking sector’s condition,” he said, “and since this is for NRB’s internal use, detailed public disclosure is unnecessary.”
NRB has given Howladar Yunus & Co. five months to complete the full audits of the 10 largest commercial banks by assets. The agreement was finalized in Poush 2081 (December 2024).
