Banks’ NPL surges by 115 percent in last fiscal

Commercial banks witnessed a substantial surge in their non-performing loans (NPL) in the last fiscal year, primarily due to the difficulties arising from the economic recession, a slowdown in loan recovery, and challenges in debt servicing.

The unaudited financial reports of 20 commercial banks for the last quarter of 2022/23 reveal that their non-performing loans (NPL) have reached 2.71 percent, marking a staggering increase of 115.07 percent compared to 2021/22. The NPL of commercial banks stood at 1.26 percent in 2021/22.

Throughout the last fiscal year, the banks grappled with an escalating number of bad loans. The Nepal Rastra Bank (NRB) even stated that bad loans could potentially reach as high as five percent by the end of 2022/23. 

As the country struggled with an economic downturn, banks faced challenges in loan recovery and debt servicing during the last fiscal year. Bankers attribute the rise in NPA to the combination of slowing economic activities, higher interest rates, and borrowers’ declining ability to repay debts. According to them, the cash flow in the market has been affected severely, leading to a decline in the demand for goods and services. The government’s inability to pay billions of rupees it owes to the contractors has added problems as borrowers related to the construction sector have not been able to repay their loans.

Although bad loans had been steadily increasing since the beginning of the current fiscal year, the non-performing loans (NPL) declined in the last quarter of 2022/23. After rising to 3.03 percent in the third quarter of the last fiscal, the NPL retreated to 2.71 percent in the fourth quarter. The banks were successful in reducing their bad loans by adopting an aggressive approach to loan recovery in the last quarter of the previous fiscal year.

Among the commercial banks, five banks experienced NPLs exceeding four percent. Kumari Bank recorded the highest NPL at 4.77 percent, followed by Himalayan Bank with 4.57 percent and Nepal Investment Mega Bank with 4.35 percent. Similarly, Prime Commercial Bank’s NPL reached 4.23 percent, and Prabhu Bank reported an NPL of 4.16 percent.

Two banks have NPLs above three percent in the last fiscal year. The NPL of Citizens Bank and Global IME Bank stood at 3.19 percent and 3.08 percent respectively. On the other hand, eight banks' NPL stood above two percent. Only two banks—NIC Asia Bank and Everest Bank—have managed to keep their NPL below one percent in FY 2022/23. The NPL of NIC Asia and Everest Bank stood at 0.8 percent and 0.79 percent. 

With the sharp rise in NPLs, the loan loss provisions of banks have also increased. As per the unaudited financial reports for the fourth quarter, the amount for provisioning has increased by 94.37 percent. Banks have set aside Rs 25.93bn for loan loss provisions till mid-July, 2023 compared to Rs 13.34bn during the same period of the last fiscal year. The total provisioning amount of banks increased by Rs 12.59bn in the last 12 months.