Rising Non-Banking Assets and Loan Write-Offs Raise Concerns in Nepal’s Banking Sector

Kathmandu – Non-banking assets and loan write-offs in Nepal’s banks and financial institutions have continued to increase, reflecting the impact of slow economic activity and declining repayment capacity of borrowers. According to Nepal Rastra Bank, the total non-banking assets of banks and financial institutions reached NPR 51.20 billion by mid-February of the current fiscal year 2022/23 (2082/83 BS). During the first seven months of the fiscal year, such assets increased by about NPR 650 million as rising non-performing loans (NPLs) forced banks to acquire collateral from defaulting borrowers.During the same period, banks and financial institutions also wrote off an additional NPR 1.15 billion in loans. The total loan write-off amount has now reached NPR 9.86 billion, up from NPR 8.70 billion recorded by the end of the last fiscal year. With the gradual withdrawal of relief measures introduced during the COVID-19 pandemic and continued economic slowdown, many borrowers have struggled to repay loans, leading to an increase in loan defaults and forcing banks to intensify collateral auctions, property acquisition, and loan write-off processes.By mid-February, commercial banks held non-banking assets worth NPR 43.44 billion, development banks NPR 4.61 billion, and finance companies NPR 3.14 billion. However, due to weak economic conditions and a sluggish real estate market, banks have been unable to sell these assets despite issuing repeated auction notices. The rise in non-banking assets is likely to affect banks’ profitability and shareholder dividends.To address the issue, the government is planning to establish an Asset Management Company (AMC) to help manage non-performing loans and non-banking assets. Nepal Rastra Bank has also announced that it will prepare the necessary legal framework and submit it to the government in the upcoming monetary policy to facilitate the establishment of such a company.