Govt payment selays to contractors putting pressure on banking sector, Says Nabil Bank CEO

KATHMANDU: Delayed payments by the government to construction contractors are increasing stress on Nepal’s banking sector and raising the risk of higher non-performing loans (NPLs), according to Manoj Gyawali, Chief Executive Officer of Nabil Bank.

Speaking at a discussion on the upcoming Monetary Policy for Fiscal Year 2083/84 organized by the House of Representatives’ Finance Committee on Sunday, Gyawali said the government’s failure to settle outstanding dues to construction companies on time has disrupted cash flows across the construction industry, making it difficult for contractors to service bank loans.

He warned that prolonged payment delays and stalled public infrastructure contracts could significantly increase bad loans in the banking system if immediate corrective measures are not taken.

Nearly Rs 500 Billion of Bank Lending Exposed to Construction Sector

Gyawali said Nepal’s banking and financial institutions currently have around Rs 500 billion in outstanding credit exposure to the construction sector, making it one of the country’s largest financed industries.

With contractors unable to receive payments for completed government projects, many are struggling to repay bank loans despite having completed contractual obligations.

He stressed that the government must address payment-related issues facing construction entrepreneurs to prevent further deterioration in banks’ loan portfolios.

“The issue is not merely a banking problem. It directly affects infrastructure development, contractors’ liquidity, banks’ asset quality and the overall economy,” Gyawali said during the parliamentary discussion.

Calls for Payment Facilitation Through Monetary Policy

Gyawali urged policymakers to incorporate mechanisms in the upcoming monetary policy that would facilitate timely payments to contractors and improve liquidity within the construction sector.

He suggested that the government should either ensure prompt settlement of outstanding bills or introduce alternative arrangements, including the transfer of stalled contracts, to enable contractors to maintain cash flow and meet their debt obligations.

According to him, such measures would improve loan recovery, reduce pressure on banks and help maintain financial stability.

Banking Sector Profitability and Government Revenue Also at Risk

The Nabil Bank CEO said the consequences of delayed government payments extend beyond contractors and banks.

He noted that Nepal’s banking sector pays approximately Rs 38 billion in annual corporate income tax, and weakening bank profitability caused by rising bad loans could directly affect government revenue collection.

“If banks’ financial performance deteriorates because borrowers cannot repay loans due to delayed government payments, the state’s tax revenue will also be affected,” he said.

Differentiate Between Wilful and Genuine Defaulters

Gyawali also called for reforms in Nepal’s loan recovery and blacklisting framework, arguing that borrowers who deliberately default on loans should not be treated the same as businesses facing genuine financial hardship caused by economic conditions.

He said the existing legal framework allows borrowers to be classified as loan-loss accounts within one year, after which banks can initiate blacklisting procedures, including recommendations for passport suspension or confiscation.

According to Gyawali, applying the same punitive measures to all borrowers is inappropriate, particularly for businesses affected by the prolonged economic slowdown.

He stressed that entrepreneurs who have invested in productive sectors but are temporarily unable to repay loans because of the economic downturn or delayed government payments should be provided with additional time and restructuring support rather than immediate punitive action.

Monetary Policy Expected to Address Structural Banking Challenges

The comments come as the Nepal Rastra Bank (NRB) prepares to unveil its Monetary Policy for FY 2083/84, with banks, businesses and industry groups urging the central bank to introduce measures that support credit expansion, improve liquidity circulation, strengthen loan restructuring provisions and help revive private sector investment amid Nepal’s slow economic recovery.

Bankers and business leaders have increasingly argued that resolving structural issues—including delayed government payments, weak investment demand and stressed borrowers—will be critical to safeguarding financial stability and supporting sustainable economic growth in Nepal.