Kathmandu. Non-banking assets (NBA) are increasing in banks and financial institutions. NBA is increasing in banks due to collateral that was seized after borrowers failed to raise loans.
Bankers who were once happy with collateral are now facing the same problem. Due to the country’s economic slowdown, loans that could not be collected and even auctioned collateral that could not be sold, as NBA continues to increase, banks are facing another headache. Although the new system introduced by Nepal Rastra Bank for bad loans has reduced the headache for banks, non-banking assets remain.
Due to problems in the economy, interest rates, slowdown in industry and business, etc., borrowers are not able to repay loans on time. As a result, non-banking assets have started piling up as borrowers’ mortgaged properties, including real estate, have stopped being sold.
According to Nar Bahadur Thapa, former executive director of Nepal Rastra Bank, NBA has increased due to increased investment in land mortgages. He said, “Non-banking assets have increased due to high investment in land mortgages. We did not give much importance to cash flow. Land mortgages are enough. The price of land is high. We went towards thinking that there is a benefit. We could not strike a balance. There was a misconception that land is completely safe, which is why it has caused the problem now.” He claims that the trend of taking land mortgages and giving loans has increased the amount of NBA in banks.
According to banking expert Analraj Bhattarai, non-banking assets also reduce the lending capacity of banks. He told Singhadurbar.com, “Banks’ non-banking assets are a double whammy for banking. Profitability will not come and lending capacity will also decrease.”
He said that banks are not formed to hold assets and that banks should work in money/cash rather than real estate.
He added, “Banks have to dispose of non-banking assets. There is a provision that banks have to sell NBAs within 3 years. After 3 years, everyone has to sell them. When everyone starts selling, supply increases. Increasing supply means banks have to sell them cheaply. Which has a negative impact on the banking financial sector. It does not make the economy dynamic. Moreover, both the banks’ lending capacity and profits decrease. .”
He said that the bank has reached a stage where it needs to think about the NBA options. “The practice of banks being confident as soon as there is collateral rather than commercial activity is wrong. That is a policy weakness. There are many difficulties in the legal provisions of our banks. Many laws need to be amended,” he said.
He said that the Bafia has given the authority to seize property if the loan is not repaid and on that basis, banks have provided loans based more on collateral.
He said that the banking sector currently needs reform. “We are currently doing traditional banking. It needs to be made a little more modern banking. He said that the bank works on cash. Taking NBA means that it starts working on assets. That is bad. It should be removed as soon as possible.”
Yan said that a debate is also needed on whether the asset management company itself is a solution or not. Bhattarai mentioned that a lot of legal reforms need to be made to create an asset management company and said, “We cannot just look at the empty money. Who will mobilize capital in an asset management company? Where will the capital be mobilized from? What kind of transactions will be done? All kinds of interpretations should be made. Asset management companies are something that everyone likes. But for today, policy reforms are needed.”
According to Nepal Rastra Bank, the non-banking assets of commercial banks have reached 35 billion 825.4 million rupees as of mid-Magh of the current fiscal year. According to the data of the Rastra Bank, Global IME Bank has the highest non-banking assets as of mid-Magh of the current fiscal year. The bank’s non-banking assets have reached 5 billion 861.8 million rupees.
The second largest non-banking asset during the review period is Himalayan Bank. In the 7 months of the current fiscal year, Himalayan has accumulated non-banking assets worth 4 billion 487.2 million rupees. .
Similarly, NIC Asia Bank has accumulated non-banking assets worth Rs 4.115 billion, Nabil Bank has accumulated Rs 3.667 billion, Nepal Investment Mega Bank has accumulated Rs 3.10 billion, Kumari Bank has accumulated Rs 2.653 billion, and Prime Commercial Bank has accumulated Rs 2.249 billion.
Similarly, Lakshmi Sunrise Bank has accumulated Rs 1.603 billion, Prabhu Bank has accumulated Rs 1.252 billion, NMB Bank has accumulated Rs 1.151 billion, Citizens Bank has accumulated Rs 1.578 billion, and Krishi Bikas Bank has accumulated Rs 1.186 billion. .
Similarly, as of mid-Magh, Nepal Bank had 204.1 million rupees, Rastriya Banijya Bank 29.76 billion rupees, Nepal SBI Bank 353.9 million rupees, Everest Bank 577.7 million rupees, Machhapuchhre Bank 980 million rupees, Siddhartha Bank 703.8 million rupees, and Sanima Bank 714 million rupees in non-banking assets, according to the data of the National Bank of Nepal.
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