The Nepal Rastra Bank (NRB) has shortlisted six consulting firms to assess the asset quality of major banks in Nepal, reaffirming its commitment to meeting international financial standards and addressing concerns raised by global watchdog organizations.
Issuing a public notice, NRB stated that the firms have been selected for an extensive asset quality review of ten commercial banks in accordance with Section 30(5) of the Public Procurement Act, 2063, and Section 71 of Nepal Rastra Bank Procurement Bylaws, 2071.
The shortlisted firms include Deloitte Partners of Sri Lanka and Howladar Yunus & Co of Bangladesh, while the remaining firms are Indian companies—KPMG Assurance and Consulting Services LLP, MSKA & Associates, JV: Mehra-JKSS-SSBDI-JV, and JV: SRBA & B.K Agrawal & Co.
International financial institutions, including the International Monetary Fund (IMF) and the World Bank, have expressed concerns over lending practices in Nepal, particularly the practice of ‘loan evergreening,’ where banks issue new loans to struggling borrowers to cover existing debts. The institutions warn that if this practice is widespread, it could pose a significant risk to Nepal’s banking system.
The World Bank’s 2014 Nepal Development Update highlighted that the true financial health of the banking sector remained uncertain due to the lack of a thorough assessment. The IMF’s April 2020 Article IV consultation also raised concerns about the quality of bank lending, noting that overdraft and working capital loans taken by some borrowers accounted for up to 40% of total loans.
The IMF recently conducted discussions with Nepali stakeholders as part of its review process under the Extended Credit Facility (ECF), a concessional loan program of USD 398.8 million for Nepal. The organization has emphasized the need for transparency in loan classification and collateral adequacy, warning that banks with high levels of bad loans are restricted from distributing dividends, which has raised suspicions that some may be concealing non-performing loans.
With increasing scrutiny from international institutions, the NRB’s move to assess asset quality marks a crucial step toward strengthening Nepal’s banking system and ensuring financial stability.
