Commercial banks’ NPLs rise notably hike in interest rates blamed. Nepali commercial banks’ nonperforming loans (NPL) increased significantly in the first three months of the current fiscal year, as borrowers failed to repay the banks’ loans on time due to excessive interest rates.
According to Nepal Rastra Bank’s (NRB) monthly report on Banking and Financial Statistics, the banks’ NPLs have increased from 1.14 percent to 1.76 percent in the last year. Banks had provided a total loan of Rs 4.22 trillion as of mid-October.
The NRB published a bleak picture of Nepal’s banking industry just one day after the World Bank released a report highlighting the good financial health of Nepali banks. According to the multilateral lending institution’s report, Nepal had an NPL rate of 1.16 percent in its banking system as of mid-July 2022, the lowest among South Asian countries. Commercial banks’ NPLs rise notably, hike in interest rates blamed.
The ratio of nonperforming loans to total loans measures a bank’s health and efficiency by identifying asset quality issues in the loan portfolio. The lower the value of NPLs, the lower the financial risk to BFIs.
According to the NRB, among the country’s 26 commercial banks, the NPLs of Nabil Bank, Global IME Bank, Siddhartha Bank, Himalayan Bank, Sunrise Bank, and Bank of Kathmandu have increased significantly.
The central bank categorizes NPLs as sub-standard, doubtful, or bad loans based on the length of the loan’s overdue period.
Substandard loans are those with interest and principal payments due in the next six months. Doubtful loans have payments that are past due for six months to a year, whereas bad loans have payments that are past due for more than a year.
With rising NPLs, banks’ provisioning amounts increased significantly between mid-July and mid-October. During the period, banks maintained an additional Rs 8 billion in loan loss provisions against NPLs, according to the NRB. Banks must keep 100 percent of bad debt in provision, which is the bank’s non-earning asset.
The rising NPLs and provision amounts have been attributed to the banks’ soaring interest rates. According to Vishnu Kumar Agrawal, president of the Confederation of Nepalese Industries, entrepreneurs have been unable to repay loans due to banks’ high interest rates.
In August 2021/22, the average interest rate on bank loans was around 8.57 percent, which has now nearly doubled.
