With the sharp rise in non-performing loans (NPLs) of banks and financial institutions (BFIs) in this fiscal year, the loan loss provisions of BFIs have also increased. The amount for provisioning of BFIs including microfinance institutions has increased by 130 percent in the last one year. The latest statistics of Nepal Rastra Bank (NRB) show commercial banks, development banks, finance companies, and microfinance institutions have set aside a total of Rs 45.31bn for loan loss provisions till mid-February 2023 compared to Rs 19.70bn during the same period of the last fiscal year. The total provisioning amount of BFIs increased by Rs 25.61bn in the last 12 months. According to NRB, the provisioning amount of commercial banks went up by 131 percent to Rs 29.52bn by mid-February 2023 which was Rs 12.78bn till mid-February 2022. Similarly, the provisioning amount of development banks and finance companies reached Rs 4.38bn and Rs 932m, respectively, during this period. The microfinance institutions (MFIs) have kept Rs 10.47bn for provisioning, according to the central bank statistics. These data show the provisioning amount of all types of banks and financial institutions has increased over the past year.

Bankers say provisioning has increased mainly due to a surge in bad loans in the banking system. With loan recovery and debt servicing becoming difficult, BFIs have been forced to provision huge amounts for NPLs. The average NPLs of BFIs (commercial banks, development banks, and finance companies) have increased to 2.63 percent by mid-February 2023, up from 1.31 percent in mid-February 2022, while MFIs have seen their NPLs jumping to almost 5 percent during the review period.

"When bad loans increase, the provisioning amount also increases," said Prakash Kumar Shrestha, Executive Director of NRB, "BFIs have not been able to recover their loans in recent days due to economic recession. Such loans have been classified as bad loans now." With the slowdown in market demand and economic activities coupled with higher interest rates, borrowers as well as traders are finding it difficult to pay back their loans. Meanwhile, NPLs of some banks went up due to mergers and acquisitions. This problem has been seen in the banks with low NPL merged with banks with high NPLs. Kumari Bank is one such example. The merger between Kumari Bank and NCC Bank increased the NPLs of the former as the latter has higher NPLs. Amid rising NPLs and provisioning amounts, the profits of BFIs have taken a beating. Bankers say profits have been affected as banks have to set aside huge amounts for the provisioning of bad loans. The net profit of BFIs (commercial banks, development banks, and finance companies) has decreased marginally in this fiscal. According to NRB, BFIs' net profit stood at Rs 44.84bn till mid-February 2023 compared to Rs 44.90bn in mid-February 2022. The profit of MFIs has decreased by a whopping 55 percent. The MFIs' profit stood at Rs 3.32bn in February 2023 compared to Rs 7.40bn in mid-February 2022. Box Rising Provisioning Amount

	Mid-February, 2022	Mid-February, 2023	Change
Commercial Banks	Rs 12.781 billion	Rs 29.520 billion	130.96%
Development Banks	Rs 2.361 billion	Rs 4.386 billion	85.76%
Finance Companies	Rs 0.488 billion	Rs 0.932 billion	90.98%
Microfinance	Rs 4.072 billion	Rs 10.475 billion	157.24%
Total	Rs. 19.702 billion	Rs 45.313 billion	129.99%