IMF announces financial audits of Nepali banks in June, Central bank prepares for ECF review

KATHMANDU: In a significant development, the International Monetary Fund (IMF) is set to conduct comprehensive financial audits of Nepal’s banks in the upcoming month of June.

This move comes as the Nepal Rastra Bank (NRB), the central bank of Nepal, gears up for an in-depth review of the Extended Credit Facility (ECF) terms.

As part of the crucial conditions for this extensive review, the NRB underscores the importance of involving international auditors in the financial institutions’ audits.

This initiative follows recent financial challenges faced by banks and financial institutions, prompting the central bank to stress the urgency of expediting the audit process to bolster its claims.

Despite the central bank’s proactive preparations for the audit of 10 major commercial banks, led by international independent auditors appointed by the IMF, the auditor appointment process has encountered delays.

The NRB has issued a call for the selection of independent auditors through international bidding. The selected auditors have been informed to conduct the audit of the 10 major banks in Nepal based on the Terms of Reference (ToR) outlined by the central bank.

Insider sources from the central bank reveal that preparations for the impending audit of these major commercial banks are already underway.

The central bank’s official statement raises concerns regarding the liquidity, debt flow, and profitability of banks, echoing the IMF’s apprehensions about the state of loans and bad debts in Nepal’s financial institutions.

Recent times have witnessed a surge in bad debts within banks and financial institutions. Despite claims by the banking sector that bad debts in South Asia remained minimal until last year, the IMF remains skeptical and has recently raised concerns about the vulnerability of banks in its risk assessment and categorization.

While some banks have managed credit risks within the limits set by the central bank, additional concerns raised by the IMF have come to light.

The central bank acknowledges some delays in the audit process but asserts that preparations for the international audit by independent auditors are underway, aligning with the mature financial details of the banks.

In accordance with the new regulatory framework, collaboration with international auditors will facilitate a thorough inspection and audit of the loan portfolios of the top 10 banks, supported by the guidance of the International Audit Inspector.

The financial landscape of Nepal is poised for a significant evaluation and potential restructuring in the wake of these upcoming audits.