The banking sector is facing serious challenges due to declining profits, loss classification, and problems related to the management of non-banking assets.
We use Google Cloud Translation Services. Google requires we provide the following disclaimer relating to use of this service:
This service may contain translations powered by Google. Google disclaims all warranties related to the translations, expressed or implied, including any warranties of accuracy, reliability, and any implied warranties of merchantability, fitness for a particular purpose, and noninfringement.
Nepal's banking sector is currently going through a historically challenging situation, said Upendra Raj Paudyal, chairman of the Confederation of Banks and Financial Institutions. He said that although the external condition of the economy is satisfactory, the internal economy remains weak.
Speaking at the sixth annual general meeting of the federation on Friday, Chairman Paudyal said that the current situation has caused frustration among investors and entrepreneurs/businessmen.
This is the reason why economic and banking activities have slowed down due to the inability to expand credit even when sufficient liquidity is available at minimum interest rates.
‘As the profits of banks and financial institutions continue to decline unexpectedly, it is felt that investors in the banking sector are gradually trying to exit in search of safe investment areas,’ he said. ‘The problems are increasing due to the increase in costs, contraction in profits, increase in non-performing loans, increase in non-banking assets, as well as the slowdown in the sale and sale of non-banking assets, and the exodus of skilled manpower. Many banks are now burdened by the burden of non-banking assets. There is no proper policy to sell, no environment, no situation to utilize non-banking assets.’
He said that banks and financial institutions, which mainly deal in liquidity, are now going through a very ironic situation where they have to focus more on asset management.
With the wise support of Nepal Rastra Bank, we have been facing various challenges in the past and are still facing them, he said.
Despite frequent policy changes and political instability or changes, the banking sector has been performing relatively satisfactorily and making itself relevant to the times, but considering the current situation, he said that the banking sector also needs to adopt the path of reform with serious self-review.
He suggested that it is very necessary to prepare an authorized mechanism or a new framework to effectively manage non-bankable assets.
He pointed out that there is also a need to review the current loan loss classification system. Currently, loans are classified as bad within a year, but in the current business cycle, real borrowers cannot revive their businesses in such a short period, he said.
He said that it is necessary to provide a chance to viable borrowers to revive within a certain time frame, and strict action should be taken against wilful defaulters.
Similarly, according to him, it is essential to change the policy that does not provide tax exemption for losses exceeding 5 percent for loans and non-bankable assets. Because in the current situation, it is clear that banks and financial institutions have to make provisions for loan losses mainly due to the macroeconomic situation.
The ever-increasing operating costs of banks can be reduced through advanced digitization, use of fintech and use of artificial intelligence. He said that there is a pressing need today to review the need for a bank's physical presence, keeping in mind the rapidly changing business environment due to digitization.
