IMF disappointment over NRB’s role to regulate Nepal’s banking sector

KATHMANDU: The International Monetary Fund (IMF) has expressed disappointment over the regulatory role played by Nepal Rastra Bank to ensure financial stability of Nepal’s banking sector.

Unveiling IMF Staff Country Reports on Thursday, the IMF has highlighted the need to ensure close monitoring of the banking system.

“The capital adequacy levels are above the regulatory minima and non-performing loan ratios are at low levels, but the banking system requires close monitoring,” reads the IMF report.

“Financial sector regulation and supervision needs to be strengthened. Progress is needed on policies that preserve the stability of the financial system while supporting growth through ensuring the availability of adequate and timely supervisory data, updating the regulatory framework to better capture risks including to banks’ asset quality, and enhancing the quality of supervision. Measures set out under the program to further improve the autonomy and accountability framework of the central bank would support this agenda.”

The international organization has stressed on the need for proper assessment of the effects of the potential deterioration in the asset quality and rising level of loan loss provisions on the profitability and capital adequacy levels of banks due to impacts of COVID-19. There is a need for proper monitoring of effects of rising leverage on the real sector.

“Sustained structural reform efforts are necessary to enhance the business environment, strengthen climate resilience, and raise medium-term growth.”

Although the authorities have a firm intention to gradually phase out the vulnerabilities in asset quality amid impacts of COVID-19, concrete plans based on a fuller view of potential impacts are yet to be announced. Further clarity is needed for the assessment of the health of the banking sector.

The IMF, however, has welcomed the NRB’s readiness to tighten macro- prudential policies to curb credit growth and mitigate the buildup of financial vulnerabilities.

Fiscal Nepal |
Sunday January 30, 2022, 01:59:45 PM |

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