By Dipesh Ghimire
Non-Performing Loans of Commercial Banks Reach 4.83% in Q3 of FY 2081/82
In the third quarter (end of Chaitra) of the current fiscal year 2081/82 (2024/25), the average non-performing loans (NPL) of commercial banks in Nepal have reached 4.83%. This marks an increase of 1.18 percentage points compared to the same period in the previous fiscal year 2080/81 (2023/24), when the average NPL stood at 3.65%.
The rise in NPLs is attributed to economic pressures, stagnation in new loan disbursements, delays in the sale of non-banking assets, and intensifying competition among banks. These factors have collectively strained the banking sector, leading to a deterioration in asset quality.
Reasons Behind the Surge in NPLs
Nepal’s economy has been grappling with a slowdown, fluctuating interest rates, and liquidity constraints, making loan recovery challenging for banks. The lack of new loan growth and disruptions in the repayment of existing loans have further exacerbated the NPL situation. Additionally, delays in the disposal of non-banking assets (e.g., collateralized properties) have negatively impacted banks’ financial health. The fierce competition among banks to capture market share has also led to lapses in risk management, contributing to the rise in bad loans.
Moreover, some banks have extended loans to high-risk sectors or adopted lenient credit appraisal standards, resulting in higher NPLs. For instance, banks like Himalayan Bank, Kumari Bank, and NIC Asia Bank, as highlighted in your prior inputs, have seen significant NPL increases, underscoring the need for improved risk management practices.
NPL Status of Commercial Banks
As of Chaitra end in FY 2081/82, the majority of commercial banks have NPLs exceeding 4%, with nine banks reporting NPLs above 5%, a threshold considered concerning from a regulatory perspective. Below is a detailed breakdown of the NPL status of various banks, including changes compared to the previous fiscal year.
Banks with High NPLs
Himalayan Bank: NPL at 7.68%, up by 2.72 percentage points from 4.96% last year. As you previously noted, the bank’s net profit plummeted by 74.33% to NPR 500 million, largely due to NPL growth and increased impairment charges.
Kumari Bank: NPL at 6.98%, a 2.03 percentage point rise from 4.95%. Your earlier input indicated a 72.85% drop in net profit to NPR 285.8 million, driven by impairment charges rising from NPR 3.54 billion to NPR 5.16 billion.
Nepal Investment Mega Bank: NPL at 6.06%, up by 1.4 percentage points from 4.66%. Despite the NPL rise, you mentioned the bank achieved a 38.61% profit increase to NPR 4.54 billion, reflecting some financial resilience.
Laxmi Sunrise Bank: NPL at 5.86%, a 0.37 percentage point increase from 5.49%. As per your input, the bank’s profit grew by 2.24% to NPR 1.65 billion, though rising NPLs pose a risk.
NIC Asia Bank: NPL at 5.75%, up by 2.67 percentage points from 3.08%. You noted a drastic 91.81% profit decline to NPR 156.7 million, with NPL growth being a key factor.
Citizens International Bank: NPL at 5.71%, a 1.95 percentage point rise from 3.76%.
Prime Commercial Bank: NPL at 5.65%, up by 1.36 percentage points from 4.29%. Your input highlighted a profit decline from NPR 2.87 billion to NPR 2.22 billion, though distributable profit surged by 452.87% to NPR 1.73 billion.
Nepal Bank: NPL at 5.45%, up by 0.6 percentage points from 4.85%. As you mentioned, the bank recorded a remarkable 2032% profit growth to NPR 2.78 billion, indicating strong financial performance.
Prabhu Bank: NPL at 5.09%, a 0.28 percentage point increase from 4.81%.
Banks with Low NPLs
Everest Bank: NPL at 0.64%, down by 0.06 percentage points from 0.7%. Your input noted a 32.55% profit increase to NPR 3.45 billion, reflecting the bank’s robust financial health.
Standard Chartered Bank: NPL at 1.44%, down by 0.7 percentage points from 2.14%, demonstrating effective risk management.
Other Notable Banks
Global IME Bank: NPL at 4.98%, up by 0.24 percentage points from 4.74%. You mentioned a 37.12% profit growth to NPR 4.53 billion, indicating strong performance.
Nabil Bank: NPL at 4.96%, up by 0.92 percentage points from 4.04%. As per your input, the bank earned the highest profit of NPR 5.05 billion.
Rastriya Banijya Bank: NPL at 4.69%, up by 0.39 percentage points from 4.3%.
Nepal SBI Bank: NPL at 4.06%, a significant 2.08 percentage point rise from 1.98%.
Comparative Table
Bank Name | Q3 FY 2081/82 (%) | Q3 FY 2080/81 (%) | Change (Percentage Points) |
|---|---|---|---|
Himalayan Bank | 7.68 | 4.96 | 2.72 |
Kumari Bank | 6.98 | 4.95 | 2.03 |
Nepal Investment Mega Bank | 6.06 | 4.66 | 1.4 |
Laxmi Sunrise Bank | 5.86 | 5.49 | 0.37 |
NIC Asia Bank | 5.75 | 3.08 | 2.67 |
Citizens International Bank | 5.71 | 3.76 | 1.95 |
Prime Commercial Bank | 5.65 | 4.29 | 1.36 |
Nepal Bank | 5.45 | 4.85 | 0.6 |
Prabhu Bank | 5.09 | 4.81 | 0.28 |
Global IME Bank | 4.98 | 4.74 | 0.24 |
Agriculture Development Bank | 4.98 | 3.3 | 1.68 |
Nabil Bank | 4.96 | 4.04 | 0.92 |
Rastriya Banijya Bank | 4.69 | 4.3 | 0.39 |
Machhapuchhre Bank | 4.59 | 3.68 | 0.91 |
NMB Bank | 4.47 | 2.86 | 1.61 |
Nepal SBI Bank | 4.06 | 1.98 | 2.08 |
Siddhartha Bank | 4.04 | 2.52 | 1.52 |
Sanima Bank | 3.42 | 1.89 | 1.53 |
Standard Chartered Bank | 1.44 | 2.14 | -0.7 |
Everest Bank | 0.64 | 0.7 | -0.06 |
Average | 4.83 | 3.65 | 1.18 |
Financial Impact and Challenges
The surge in NPLs has significantly impacted banks’ profitability. As you previously highlighted, banks like Himalayan, Kumari, and NIC Asia have experienced sharp profit declines due to higher impairment charges and NPL growth. However, banks such as Nabil, Global IME, and Nepal Bank have managed to post profit growth, underscoring the importance of robust risk management and strategic lending.
The Nepal Rastra Bank (NRB) has been urging banks to maintain NPLs below 5%. The fact that nine banks have exceeded this threshold raises concerns about regulatory compliance and financial stability. Rising NPLs could also strain banks’ capital adequacy ratios, as you noted in the case of Global IME Bank (12.36%).
Potential Solutions and Recommendations
Enhanced Risk Management: Banks must strengthen loan appraisal and monitoring processes, focusing on safer lending practices and reducing exposure to high-risk sectors.
Non-Banking Asset Management: Expediting the sale of collateralized assets will improve liquidity and help reduce NPLs.
Loan Expansion and Economic Recovery: Economic revival and increased lending could boost banks’ revenue streams. As you mentioned, banks like Laxmi Sunrise and Prime Commercial have seen growth in loans and deposits, a positive sign.
Regulatory Support: NRB’s interventions to stabilize interest rates and manage liquidity could aid banks in controlling NPLs.
Conclusion
The average NPL of commercial banks reaching 4.83% in the third quarter of FY 2081/82 signals heightened risks in the banking sector. Banks like Himalayan, Kumari, and NIC Asia face significant challenges due to high NPLs, while Everest and Standard Chartered demonstrate effective risk management. Your prior inputs on banks’ profits and financial metrics further confirm that NPL management and loan quality improvement are critical for long-term stability. Economic recovery, proactive policies, and strategic measures by banks will be key to addressing this issue.
