NBA tells banks not to engage in loan ever-greening

Kathmandu Oct 18, 2015- Nepal Bankers’ Association (NBA) has asked member banks not to engage in ever-greening of loans by offering additional credit to borrowers to repay their loans. After the central bank verbally warned against such a practice, the NBA wrote to its members not to do so.

 

Nepal Rastra Bank (NRB) has said ever-greening of loans has posed risk to stability of the banking sector as it is an attempt to cover up bad or suspicious loans. It increases loan burden for borrowers, while the banks can show more profits in their balance sheets.

 

The NRB has termed the ever-greening of risk assets as a big challenge in the banking industry. The central bank, in its annual supervision report 2014, said a major chunk of the total risk assets is of “revolving nature”. There is a practice of banks lending short-term loans on ad-hoc basis as well as extending dates and renewing facilities that ultimately help in meeting the debt service need of borrowers. “The Nepalese banking industry has no practice of clean-ups for the revolving loans due to which the problems such as: maturity mismatch and ever-greening are still prevalent in the industry.”

 

The banks are finding it hard to recover loans and interest from borrowers as a result of the closure of industries and trading activities due to long-running banda in Tarai and Indian trade embargo on Nepal. Meanwhile, the central bank said it was working to announce a relief package for industrialists and traders affected by the ongoing political crisis. NRB has been working on provisions such as extending loan-repayment deadlines, restructuring of project and avoiding penalty for the delay in repayment and giving banks relaxation in provisioning. Source: TKP