NewBiz Report

KATHMANDU, August 7

Commercial banks of Nepal saw their non-performing loans (NPLs) surge in the last fiscal year as slowdown in economic activities affected loan recovery.

The average NPL ratio of the commercial banks increased to 3.58% by the end of the FY 2023/24, up from 3.05% in the previous FY 2022/23, the unaudited financial statements of the banks for the last quarter of the last fiscal year show.    

NPLs, also known as bad loans, refer to the credit extended by the banks and financial institution which cannot be recovered in a specified period.  

While seven banks saw their NPL decline in the review year, remaining 13 witnessed an increase, with eight banks reporting more than 4%  NPL.

While Kumari Bank has the highest NPL ratio at 4.95%, Everest Bank has the lowest at 0.71%.

Meanwhile, NIC Asia Bank’s NPL ratio increased from 0.88% to 3.41% in a year.

Various external and internal factors caused slowdown in economic activities affecting banks’ credit expansion as well as recovery 

The long term effects of Covid pandemic, ongoing Russia-Ukraine conflict, and the protests in the country for non-payment of loans taken from the banks and financial institutions impacted the loan recovery. 

The average NPL ratio of Nepal’s commercial banks was 1.10 in the fiscal year 2021/22. 

Despite the surge, Nepal Rastra Bank’ newly appointed spokesperson Ramu Paudel, argued that it was not a major issue. 

“NPL has surged because of the sluggish economic activities,” said Paudel. “It will start coming down as the economic activities accelerate.”

The International Monetary Fund (IMF) has also raised questions on the NPL statistics of Nepali banks.

The global financial agency put a condition last year of carrying out the audit of 10 big commercial banks to examine their credit quality before approving an installment under the Extended Credit Facility (ECF), suspecting evergreening of loans. 

Nepal Rastra Bank has moved forward the process of selecting an auditor for the purpose.

Table below shows NPL ratios of Nepali commercial banks at the end of fiscal years 2022/23 and 2023/24.