Non Performing Loans of Nepali Banks

A World Bank recent report unveils that Non-performing loans (NPL) of commercial banks have decreased to a 10-year low The report titled “Nepal Development Update” states that NPL of commercial banks came down to 2.5 per cent in FY 2012-13, the lowest in a decade. 

Loans not repaid timely are called NPL in financial sector. A sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days. A nonperforming loan is either in default or close to being in default. If the debtor starts making payments again on a nonperforming loan, it becomes a re-performing loan.

Six banks reported NPL more than that of 3 per cent, of which only two had NPL in excess of 5 per cent. One of them is state-controlled Agriculture Development Bank Ltd. Eight banks recorded NPL below 1 per cent. Most of the remaining banks had NPL between 1 and 2 per cent. According to the report, two state-owned banks—Nepal Bank Limited and Rastriya Banijya Bank—appear to have achieved a significant turnaround in loan recovery.

The report said the banks’ loan exposure to real estate has decreased to historically low levels of 14.9 per cent from previous fiscal’s 17.1 per cent. 

All banks have met the minimum CAR of 10 percent (plus 1 percent buffer capital) except two state-controlled banks—Nepal Bank Limited and Rastriya Banijya Bank.

Their CAR also improved with NBL maintaining a CAR at negative of 0.5 percent from the negative of 5.5 percent a year ago, while RBB showing a positive CAR of 3.3 percent from a negative of 9.3 percent a year ago.

Banking access to Nepali people increasing

A recent report revealed that Nepal's 43 per cent population has access to banking services. This figure is based on the number of deposit accounts in commercial banks, development banks and finance companies compared to the population size. The figure may increase further if the deposit accounts with cooperatives, micro-finance and other financial intermediates are taken into account. In 2006, only 26 percent population had access to banking services.

The number of deposit accounts in A, B and C class banks and financial institutions (BFIs) stands at 11.40 million, according to the Nepal Rastra Bank (NRB). The number is 43 percent of the total population of 26.49 million as per Census 2012.

As the number of branches of A, B and C class financial institutions has reached 2469 (Mid-August), number of people opt for formal financial channel to economic transactions. The central bank has been encouraging BFIs to reach non-banked areas by issuing a directive which says banks can open their branch in the Kathmandu valley only after opening three branches outside the Kathmandu valley.

ATM Fraud

Technoligy-enabled banking frauds are being found committed in new ways in recent years and the trend is on the rise. The Nepal police arrested three people involved in recent ATM (automated teller machine) fraud case. The Central Investigation Bureau of Nepal Police has detained Kewal Pratap Rana of Lalitpur, Bir Bahadur Bohora of Badagaun, Salyan and Naresh Kumar Agrawal of Naxal, Kathmandu on the charge of withdrawing money from other people’s accounts by using fake ATM cards.

The bankers in Nepal are not in position to curbing the fraud case because looters are superior than the security measures applied by the banks. It is also difficult to resolve the issue as there is involvement of the bank staffers. There were a series of thefts at varied Banking and Financial Institutions including Kist Bank, H&B Development Bank, Himalayan Bank and Nabil Bank with the involvement of their present or former staffers.

Nepal Rastra Bank and the police have blamed a weak security system in the banking industry for the increase in such incidents. The central bank has issued many circulars ordering BFIs to strenghren their security system  and take measures to reduce operational risks. Recently, it asked them to maintain separate assessments of operational risks and submit a report.  

New Bank Expansion Criteria Revised

Nepal Rastra Bank, the central bank of Nepal has changed the provisions regarding establishment of new bank branches or head offices in the Kathmandu valley. Henceforth, banks and financial institutions will have to open three branches outside the valley before they will be allowed to open one branch in the valley. Earlier, they were allowed to set up branches in the valley after opening two branches elsewhere in the country.

Among the three branches required to be opened outside the valley, one branch must be established in one of the 14 districts identified by the central bank as having a very low presence of banks and other financial institutions. These districts are Bhojpur, Okhaldhunga, Manang, Rukum, Salyan, Jumla, Mugu, Humla, Kalikot, Dolpa, Jajarkot, Bajhang, Bajura and Darchula. Previously, this list contained 17 districts. Similarly, of the two remaining branches, at least one should be located outside the perimeter of district headquarters or municipalities. 

Compulsory Lending for B and C Class

Nepal Rastra Bank haas ordered development banks and finance companies to raise the level of their lending to the productive sector to 15 and 10 per cent respectively by mid-2016. The productive sector includes agriculture, energy, tourism and small and cottage industries. The provision was only for commercial banks previously.

The provision of compulsory lending to the productive sector was made to ensure sustainable investment in the productive sector so that it would create employment opportunities within the country and aid poverty alleviation. Now the financial institutions have to prepare annual action plans to implement the directive and set half-yearly targets in a way that can be monitored. 

NRB has already directed commercial banks to increase their lending to the productive sector to 20 per cent by mid-July 2015. The central bank has also increased the required level of lending to agriculture and energy to 12 per cent from the earlier 10 per cent for commercial banks. However, A class banks have to maintain their lending to these two sectors at 10 per cent within the current FY according to the latest directive. NRB has also defined agriculture sector loan, energy loan, tourism sector loan, cottage and small industry loan which have been categorized as productive sector loans. 

Civil Bank merge plan

Axis Development Bank and Civil Merchant Finance Company have plan to merge with Civil Bank Ltd. The three financial institutions have signed a MoU to this effect. Both Civil Bank and Civil Merchant Finance are promoted by the Civil Group. Likewise, Axis Development Bank was formed a year ago, following the merger between Pashupati Development Bank and Udhyam Bikas Bank. After the merger, the total number of branches of Civil Bank Ltd will reach a total of 32 and the number of accounts will exceed seven million, according to a press statement issued by the bank.

Civil Bank has a paid up capital of Rs two billion, while the paid up capital of Axis Development Bank stands at Rs 718 million, and Civil Merchant Finance Company’s paid up capital is worth Rs 166 million.

Civil Bank will be the sixth commercial bank to undergo a merger. Two years back, Nepal Bangladesh Bank had to merge with Nepal Sri Lanka Merchant Banking and Finance. Last year, Machhapuchchhre Bank merged with Standard Finance. Likewise, in the last fiscal year NIC Bank and Bank of Asia Nepal merged to become NIC Asia Bank. Also, Global IME Bank that was formed after the merger between Global Bank and two finance companies—IME Financial Institution and Lord Buddha Finance—further merged with Social Development Bank and Gulmi Bikas Bank two months back.

The Nepali financial system has witnessed 18 sets of mergers since the promulgation of Merger Bylaws two and a half years back by the central bank.

Kist Bank Fraud

The Metropolitan Police Crime Division today arrested six people, including Rohit Lal Shrestha, 34, of Thamel, head teller at Thamel branch of KIST Bank Ltd., for defrauding the bank of NPR Eight million on August 26. Other arrestees are Laxman Adhikari, 26, of Gorkha, Prakash Nepali, 24, of Chitwan, Rameshwar Paudel, 26, of Nuwakot, Amrit Tamang Lama, 33, of Kavre and Krishna Sijwal, 44, of Pyuthan. The MPCD had constituted a probe team under SP Hari Bahadur Pal to look into the case after KIST Bank sought police’s help on the same day the incident occurred. 

According to SSP Bijaya Lal Kayastha, MPCD in-charge, Shrestha was the mastermind behind the fraud, hiring five people to execute it. Shrestha, who had been working at the KIST branch as head teller for three years, had hatched the plan to clear the debt he owed to various people and financial institutions. “As per Shrestha’s plan, Paudel made a call to the Thamel branch office asking for eight million rupees. He identified himself as Gyanendra Khadka, manager of the bank’s Kalanki branch, and informed that he was sending Nepali and Siljal there to collect the cash due to dearth of cash at the Thamel branch,” DSP Prajit KC said.

Police said they were investigating possible involvement of other bank staff in the loot. They have charged Shrestha and his accomplices with fraud.

सिभिल बैंकमा दुई वित्तीय संस्था गाभिने

सिभिल बैंकमा एक्सिस डेभलपमेन्ट बैंक र सिभिल मर्चेन्ट वित्तीय संस्था गाभिने भएको छ। संस्था गाभने विषयमा बैंकका अध्यक्ष इच्छाराज तामाङ, एक्सिस डेभलपमेन्ट बैंकका अध्यक्ष विदुर धमला तथा सिभिल मर्चेन्ट वित्तीय संस्थाका सञ्चालक अरूणराज श्रेष्ठबाट सम्झौता पत्रमा हस्ताक्षर भएको छ।

मर्जरपश्चात बैंकको नाम सिभिल बैंक लिमिटेड नै रहने छ। हाल सिभिल बैंकको चुक्ता पूँजी रु. २ अर्ब रहेको छ। त्यसैगरी एक्सिस डेभलपमेन्ट बैंकको चुक्ता पूँजी रु. ७१ करोड ८१ लाख र सिभिल मर्चेन्ट वित्तीय संस्थाको चुक्ता पूँजी रु. १६ करोड ६५ लाख रहेको छ। हाल सिभिल बैंकको मुख्य कार्यलयसहित २० शाखा रहेका छन् भने एक्सिस डेभलपमेन्ट बैंक र सिभिल मर्चेन्ट वित्तीय संस्थाको क्रमशः १० र २ शाखा रहेका छन्। मर्जरपश्चात बैंकको कुल शाखा संख्या ३२ पुग्ने भएको छ।