November 27: Bad loans of banks and financial institutions (BFIs) have been increasing due to the slump in economic activities.

The recovery of loans has been affected due to the decline in economic activities as well as the agitation started by defaulters for non-payment of bank loans.

According to the latest data published by Nepal Rastra Bank, the average bad loans of banks and financial institutions have reached 3.66 percent as of mid-October of the current fiscal year (FY). During this period, bad loans of commercial banks have reached 3.61 percent, while that of development banks stand at 3.19 and finance companies are struggling with non-performing loans of 8.37 percent.

In mid-July of the current year, the average bad loans of banks and financial institutions was 3.02 percent including 2.98 percent of commercial banks, 2.49 percent of development banks and 7.60 percent of finance companies.

Ashoke Rana, Chief Executive Officer of Himalayan Bank, says that bad loans have increased due to the decline in economic activities and the provisioning of concessions given in the past.

"The concessions given during the Covid-19 and the reduction in economic activities are now causing weak recovery of loans," he said.

With the increase in bad loans, the profits of most of the banks and financial institutions have decreased in the first quarter of the current year. Their dividend distribution capacity has also decreased.

According to Nepal Rastra Bank, the number of account holders in banks and financial institutions has reached 50 million as of mid-October. Out of this, the number of people taking loans from banks has reached 18,54,000.

Compared to mid-July, 976,000 new account holders were added in the banking system by mid-October. The number of borrowers has also increased by 5,766 people. As of mid-October, the number of mobile banking customers has reached 22.2 million and internet banking customers has reached1.625 million.

Similarly, the interest rate of deposits and loans has become cheaper by mid-October. The central bank informed that the average interest rate on deposit in mid-October was 7.90 percent and the interest rate on loan was 12.11 percent. The NRB said that the interest on deposits stood at 8 percent and interest on loan at 12.24 percent in mid-July.