The National Bank of Nepal has identified 10 large ‘Domestic Systemically Impervious Banks’ operating in Nepal and prepared a framework for regulation. The framework has been prepared in line with the lessons learned from the 2008 global financial crisis and the best practices of the Basel Committee on Banking Supervision (BCBS), the central bank said.

The risk of failure is also high when a bank is too large. The NRB has stated that regulatory standards have been prepared to reduce systemic risk with the aim of ensuring that no bank is ‘too big to fail’. The NRB says that the framework aims to identify large banks, reduce systemic risk, increase the stability of large and highly interconnected banks, and ensure proportionate and risk-based supervision. Four types of indicators have been prepared to identify systemic risk. In which the financial size (balance sheet) of the bank has been assigned a weight of 40 percent, interconnectedness has been assigned a weight of 30 percent, substitution capacity has been assigned a weight of 15 percent, and complexity has been assigned a weight of 15 percent. These indicators are said to reflect the bank’s total exposure, assets/liabilities within the financial sector, role in the payment system, trading activities, and cross-border transactions. Based on the scores obtained through the aforementioned indicators, the NRB will require such banks to increase capital by 0.20 to 1 percent for high risk management. The framework also includes a provision for the NRB to exercise regulatory discretion. However, the NRB has clarified that such a capital increase will be implemented only from 2027.