KATHMANDU: Governor of Nepal Rastra Bank, Maha Prasad Adhikari, has stated that bad loans of the banking sector cannot be reduced unless the cooperatives sector is reformed. He expressed this view while speaking as the chief guest at a discussion on managing risky assets in the banking sector of Nepal on Sunday.

Adhikari emphasized the importance of the cooperative sector to the country's economy, noting that improvements in the banking sector and overall economy are dependent upon reforms in this sector.

"It is time to think about cooperatives. Cooperatives play a significant role in the economy. Problems have arisen because cooperatives have been operating like banks. For 20 years, we have advocated for a secondary regulator for cooperatives, but the lack of implementation has led to the ongoing issues," he said. "Until this problem is solved, the bank's bad loans will not decrease, and the economy will not improve."

He stressed the need for an organization with skilled manpower to manage troubled cooperatives and a secondary regulator for managing other cooperatives.

Additionally, Adhikari pointed out that bad loans have increased due to ineffective monitoring of banks, financial instability, economic slowdown, recovery issues, and declining business morale. He mentioned that the central bank is now prioritizing credit scores to address these issues.

"The wrong mentality that loans do not need to be repaid has contributed to the increase in bad loans," he said.

Adhikari also highlighted the necessity of political stability for economic stability, drawing parallels with other countries where political stability has led to economic stability. He dismissed market rumors about high bank profits, arguing that an average profit of 8 percent is not excessive.

Rajesh Upadhyay, senior vice president of the Confederation of Nepal Banks and Financial Institutions, echoed Adhikari's concerns about increasing bad loans, which he said are posing significant challenges to the economy. "There is pressure on bankers to keep bad loans below 5 percent as per the provision fixed by the Nepal Rastra Bank, but bad loans can exceed 4 percent," he said.

Upadhyay suggested that banks should focus on increasing reserves rather than equity to strengthen their position. He also recommended that banks and financial institutions prioritize reducing expenses by leveraging information technology.