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Non-banking assets of banks and financial institutions (BFIs) have increased significantly as their non-performing loan (NPL) levels rise.

A recent report by the Nepal Rastra Bank (NRB) shows that NPL levels of banks and financial institutions currently stand at 3.98 percent. Consequently, non-banking assets of commercial banks have increased by over Rs 15bn in a one-year period. Banks and financial companies (BFIs) have Rs 27.6bn worth of non-banking assets as of mid-May, compared to Rs 15.77bn worth of non-banking assets in mid-May 2023.

A large share of such assets is with commercial banks. According to the NRB, 20 Class ‘A’ banks in the country have Rs 23.74bn worth of non-banking assets, which is about Rs 10bn more than the Rs 13.19bn worth of non-banking assets they held in mid-May 2023.

Similarly, development banks have Rs 2.51bn worth of non-banking assets, up from Rs 1.7bn worth of such assets in mid-May 2023. Likewise, finance companies have Rs 1.34bn worth of non-banking assets. The Class ‘C’ companies had non-banking assets worth Rs 793m in mid-May 2023.

Non-banking assets are properties acquired by banks and financial institutions (BFIs) in settlement of their debts. When a borrower is unable to repay the loan in cash, banks seize properties pledged as collateral against such loans. BFIs are required to dispose of such assets at the earliest to convert these non-cash assets into cash assets for their regular banking business.

The central bank requires BFIs to set aside a provision equal to 100 percent of the asset’s value from the moment they acquire non-banking assets to mitigate risk. This requirement has led to an increase in the banks’ provision amounts.

Bankers are under stress due to the increase in non-banking assets. They have not been able to sell off these properties despite publishing auction notices repeatedly. The slowdown in real estate transactions has further aggravated the situation for them. 

Meanwhile, the existing land ceiling regulations have created problems for banks in acquiring such assets.

NRB preparing to open ‘Bad Bank’

The central bank has begun preparations to open a bad bank for the management of non-banking assets with different BFIs.

Speaking at a program recently, Governor Maha Prasad Adhikari said the central bank was drafting the necessary policies for establishing a bad bank.

A bad bank is an entity set up to buy the bad loans and other illiquid holdings of BFIs. BFIs holding significant non-performing assets can sell these assets to the bad bank at market price, which will give them liquidity to focus on their banking business.

The central bank has concluded that an asset management company should be established through specialized legislation. Stating that a bad bank would become a real estate company if it were to open under existing laws, the central bank has been advocating for the creation of an entity with special capabilities.

The price of gold has increased by Rs 800 per tola in the domestic market on Thursday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 144, 900 per tola today. It was traded at Rs 144, 100 per tola on Wednesday.

Similarly, tejabi gold is being traded at Rs 144, 200 per tola. It was traded at Rs 143, 400 per tola.

Meanwhile, the price of silver has increased by Rs 15 and is being traded at Rs 1,885 per tola today.

Cross-border electricity transmission lines with a combined capacity of 1,580 MW have been built and deployed for electricity trade between Nepal and India.

The voltage levels of these transmission lines range from 33 kV to 400 kV, with capacities from 45 MW to 800 MW. The 400 kV Dhalkebar-Muzaffarpur transmission line alone can transmit 800 MW of electricity, according to the Nepal Electricity Authority (NEA).

NEA officials state that Nepal can immediately export up to 1,500 MW if India grants approval. Currently, NEA has permission to export 690 MW of hydropower to India. India has allowed Nepal to export power generated by Chilime, Solu Khola, Kabeli B-1, Likhu-4, Lower Modi, Solu-Dudhkosi, Dordi Khola, Upper Kalanga Gad, Upper Chamelia, Solu Khola, Super Madi, Upper Balephi 'A' and Upper Chaku 'A', among other projects.

NEA has been selling energy in the day-ahead market of the Indian Electricity Exchange (IEX) and has signed a five-year agreement to sell 200 MW of hydropower to the Indian state-owned company NTPC Vidyut Vyapar Nigam Ltd.

The Dhalkebar-Muzaffarpur transmission line is the only high-capacity cross-border line operational at present, with a maximum capacity of 2,000 MW. However, the two countries have agreed to transmit only up to 800 MW from this line.

Several other cross-border lines, including two 132 kV Kataiya-Kusbaha and Kataiya-Kusbaha II with capacity of 120 MW and 160 MW, respectively, the 132 kV Raxaul-Parwanipur (160 MW), Ramnagar-Gandak (65 MW), Mainiya-Sampatiya (160 MW), and Tanakpur-Mahendranagar (70 MW), are also in operation.

According to NEA officials, Nepal and India will have infrastructure to support transmission of 12,700 MW by 20230. Many transmission line projects are under different stages of construction. The 400 kV Dhalkebar-Sitamarhi transmission line with a capacity of 2,500 MW is one such project. The transmission line, which is dedicated to export power generated by the Arun III hydropower project, is expected to come into operation by 2025/26. The 132 kV Nepalgunj-Nanpara with a capacity of 200 MW is expected to be operational by 2025/26. 

Other notable 400 kV cross-border transmission line projects include New Butwal-Gorakhpur, Inaruwa-Purnea and Kohalpur-Lucknow. All these lines can transmit up to 2,500 MW.

NEA officials say Nepal has requested permission to export 1,200 MW this year. 

Nepal is in an energy surplus situation during wet months. The country, however, faces a shortfall of energy during the dry season when power generation by its run-of-river (RoR) projects shrink to nearly a third of installed capacity. This necessitates import from India during the dry months even though energy goes to waste during the wet months.

Talks are underway to export 40 MW of electricity from Nepal to Bangladesh using Indian energy infrastructure. Officials from Nepal and Bangladesh believe that the success of this power agreement could open doors for more energy cooperation between the two countries in the future.

The Nepal Stock Exchange (NEPSE) gained 23. 25 points to close at 2,175.40 points on Wednesday.

Similarly, the sensitive index surged by 4.82 points to close at 385. 75 points.

A total of 15,296,739-unit shares of 322 companies were traded for Rs 5. 74 billion.

Meanwhile, Balephi Hydropower Limited (BHL) was the top gainer today, with its price surging by 9. 99 percent.

Likewise, Buddha Bhumi Nepal Hydropower Company Limited (BNHC) was the top loser as its price fell by 10.00 percent.

At the end of the day, total market capitalization stood at Rs 3. 45 trillion.