The government is going to establish a separate company for the management of bad loans which are increasing rapidly in the financial system. The government is preparing to manage the bad loans of banks and financial institutions by establishing a company named Asset Management Company (AMC).

Deputy Prime Minister and Finance Minister Bishnu Paudel submitted to both the Houses of Parliament last Thursday, in the next year's budget, it is mentioned that the second financial sector reform strategy will be implemented and AMC will be established. "The second financial sector reform strategy will be implemented," Finance Minister Paudel said, "An asset management company will be established for the management of bad loans and non-banking assets of banks and financial institutions." According to experts, indicators such as decrease in profit of most banks and financial institutions, failure to increase credit expansion, increase in bad loans, decrease in net interest income, decrease in return on assets (ROE) in the quarterly financial statements confirm the impact of the sluggish economy.

According to the financial report of the third quarter of the current year released by the 20 commercial banks in operation on Sunday, the average bad loan of the banks is 4.83 percent. Compared to the second quarter of 2081/82 and the third quarter of the previous financial year, bad loans of banks have generally increased. Banks' bad loans averaged 4.49 percent as of December last year and 3.65 percent in the third quarter of last financial year.

Even though there was no big increase in the average bad loans of the banks until last December, many banks individually have bad loans of more than 5 percent. According to the instructions of the National Bank, the banks should keep the average bad loans within 5 percent. Even though the bad loans started increasing continuously in the last quarter, the National Bank has been turning a blind eye when the banks publish more than five percent. According to the financial statements of the banks, 9 of the 20 commercial banks in operation have bad loans of more than 5 percent. Bad loans of 17 banks are more than 4 percent while Everest Bank has the lowest at only 0.64 percent. Standard Chartered's bad loans are 1.44 percent and Sanima Bank's is 3.42 percent. Himalayan Bank's bad loans are the highest at 7.68 percent, while Citizens, Kumari, Laxmi Sunrise, Nepal, Investment Mega, NIC Asia, Prabhu and Prime Bank have posted more than five percent bad loans. Although the bad loans of 17 banks have expanded at a high rate, the bad loans of three banks (Standard Chartered, Everest and Sanima) are very low, so the average is less. Experts say that the loans published by

banks are not real and actually hide many bad loans (shown as good). They say that if there is no improvement in loan recovery in the next few months, many banks will face difficulties. Finance Minister Poudel announced that the budget will develop the capacity of regulatory agencies in the financial sector, and make necessary arrangements to facilitate access to capital and credit. 

Due to the contraction in business due to the decrease in overall demand, the government has announced that it will facilitate business revival by providing concessions in the rescheduling of loans, more working capital flow and interest penalties. The government is going to arrange for citizens to fill in KYC details at one place once a year and attach the details to the national identity card. Finance Minister Paudel said that arrangements will be made to enable entities that require KYC details to obtain them electronically. "In order to make the economy dynamic, loans to the private sector will be expanded," Finance Minister Paudel said, "The existing sectoral risk regime will be reviewed and loans for working capital will be facilitated." The Minister of Finance has announced that the arrangement of reinsurance will be arranged for the possible risk management of the Deposit and Credit Protection Fund.