Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: The Supreme Court of Nepal has scrapped the interim stay order halting the Loan Portfolio Review (LPR) process of 10 major commercial banks, giving a green signal to resume the full audit process as committed under the International Monetary Fund’s (IMF) Extended Credit Facility (ECF) agreement.
A joint bench of Justices Dr. Manoj Kumar Sharma and Nripadhwaj Niroula ruled on Asar 9 (June 24) that the Nepal Rastra Bank’s audit process is lawful, allowing the stalled review to move forward. Earlier, on Jestha 23 (June 6), the court had issued a short-term interim order following a petition filed by a disqualified audit firm.
The central bank had selected Bangladeshi audit firm Howladar Yunus & Co. through an international bidding process for the LPR. The selected firm had been stopped from submitting financial proposals after rival bidder Mehra–JKSS–SSBDI JV challenged the procurement in court. With the interim order now lifted, NRB officials confirmed that the firm will be asked to submit its financial proposal within this week.
The full-scope audit will cover not just loan quality but the entire financial position of the 10 selected banks. NRB will deploy 22 auditors, with two from the audit firm and two NRB staff assigned to each bank. The banks were selected based on concerns over weak asset quality, large credit exposure, and potential breaches of prudent banking practices.
The IMF had flagged concerns over loan evergreening practices and had made the LPR a key benchmark to unlock further ECF funding. With the audit resuming, the sixth tranche of the ECF program—worth USD 42.7 million (approximately NPR 5.85 billion)—is expected to be approved by the IMF’s Executive Board. Nepal has already received USD 331.8 million under the total approved ECF package of USD 395.9 million.
Earlier efforts to award the LPR assignment to KPMG India failed due to budget issues. A fresh process began, and on Falgun 19, 2081, six firms were shortlisted. The selection of Howladar triggered legal complications after the losing firm filed a writ petition alleging procedural irregularities.
The LPR comes alongside other reforms initiated by NRB, including the implementation of Working Capital Loan Guidelines, designed to limit misuse of credit lines. The central bank will provide the audit framework, while the international firm will develop the detailed audit model.
Following the Supreme Court’s verdict, NRB confirmed that financial proposal submission and audit mobilization will resume as per the IMF’s structural benchmarks. The sixth ECF review, already agreed upon at the staff level, had been delayed due to the pending court decision. The IMF had made it clear that Board-level approval would depend on Nepal initiating the LPR process.
The IMF had approved Nepal’s ECF program on January 12, 2022, with a total envelope of USD 395.9 million (approx. NPR 54 billion) in interest-free loans tied to reforms in transparency, banking supervision, and macroeconomic stability.
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