Banks’ average NPLs escalate by 0.65 percent

In the first quarter of the current fiscal year 2081/82, the non-performing loans (NPLs) of commercial banks rose by 0.65% on average. The average NPLs of 20 commercial banks stood at 4.04%, up from 3.40% during the same period last year.

 With the country grappling with the economic slowdown, they are facing difficulties in loan recovery, leading to a rise in NPLs. The banks warn that if this situation continues for too long, it could increase financial risks.

Despite this, three banks managed to reduce their NPLs during the review period. The Agricultural Development Bank’s NPLs decreased from 5.33% to 4.78%, Everest Bank’s NPLs fell from 0.90% to 0.77%, and Nepal SBI Bank’s NPLs dropped from 2.35% to 1.84%.

Meanwhile, some banks have seen their NPLs exceed the 5% threshold. Citizens Bank’s NPL stands at 5.41%, Sunrise Bank’s at 5.44%, and Nepal Investment Mega Bank’s at 5.84%.

Lower NPLs indicate financial strength, reducing risks and improving profitability since banks need to set aside fewer provisions. Nepal Rastra Bank (NRB) has mandated that banks keep their NPLs below 5% to maintain financial stability.

NRB has also issued guidelines for loan provisioning based on how long payments are overdue. Loans overdue by up to one month are considered “standard” and require a 1% provision. Loans overdue by three months must be placed on a watchlist with a 5% provision.

Those overdue for more than six months are categorized as “substandard” and require a 25% provision. Loans unpaid for up to one year are treated as “doubtful” with a 50% provision, while loans unpaid for more than one year are classified as “bad loans” and require a 100% provision.

In the first quarter of the current fiscal year, Everest Bank’s NPL stands at 0.77%, Nepal SBI Bank’s at 1.84%, and Standard Chartered Bank’s at 1.95%.