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Govt to establish asset management company to tackle rising bad loans

Credit crunch looms as commercial banks grapple with liquidity mismatch
Fiscal Nepal
KATHMANDU: In a bid to address the growing issue of non-performing loans (NPLs) in Nepal’s financial system, the government has announced plans to establish an Asset Management Company (AMC). The initiative, outlined in the 2025/26 budget presented by Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel last Thursday, aims to manage bad loans and non-banking assets of banks and financial institutions as part of the second financial sector reform strategy.
“The second financial sector reform strategy will be implemented,” Paudel stated in Parliament, adding, “An Asset Management Company will be established to manage bad loans and non-banking assets of banks and financial institutions.” The sluggish economy has directly impacted the financial sector, with third-quarter reports showing declining profits, stagnant loan growth, rising NPLs, reduced net interest income, and lower returns on equity (ROE) for most banks.
According to third-quarter financial reports released by 20 commercial banks on Sunday, the average NPL ratio stands at 4.83%, a slight increase from 4.49% in the second quarter of 2024/25 and 3.65% in the third quarter of the previous fiscal year.
While Nepal Rastra Bank mandates banks to maintain NPLs below 5%, nine banks have reported ratios exceeding this threshold, with Himalayan Bank recording the highest at 7.68%. Other banks with NPLs above 5% include Citizens, Kumari, Laxmi Sunrise, Nepal, Investment Mega, NIC Asia, Prabhu, and Prime.
In contrast, Everest Bank reported the lowest NPL at 0.64%, followed by Standard Chartered at 1.44% and Sanima at 3.42%. Experts warn that the actual NPL figures may be higher, as some banks are suspected of underreporting bad loans by classifying them as performing assets. If loan recovery does not improve in the coming months, many banks could face significant challenges.
The budget also includes measures to strengthen regulatory bodies, ease access to credit, and restructure loans for businesses affected by reduced demand. The government plans to facilitate business recovery by offering loan rescheduling, additional working capital, and interest waivers. To streamline processes, citizens will be required to submit Know Your Customer (KYC) details once annually, linked to their national ID, which institutions can access electronically.
To stimulate the economy, the government will expand credit to the private sector, review sectoral risk frameworks, and simplify working capital loans. Plans also include extending banking services to remote areas through digital, mobile, and branchless banking to bolster rural economies. The Deposit and Credit Guarantee Fund will introduce reinsurance to manage potential risks.
The budget emphasizes mobilizing private capital through green and sustainable development bonds under the Green Taxonomy framework and issuing local currency bonds in international markets to attract foreign investment. Subsidized loans with interest concessions will be implemented to boost production, employment, and self-employment in targeted sectors.
Additionally, the government aims to reform microfinance institutions by improving governance and internal controls while offering concessional loans to support struggling microfinance borrowers. To attract foreign investment, hedging services will be permitted to manage foreign exchange risks.
These measures reflect the government’s commitment to stabilizing the financial sector and fostering economic growth amid challenging conditions.
Fiscal Nepal |
Sunday June 1, 2025, 12:29:40 PM |

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