Stakeholders have pointed out that the National Bank should bring a monetary policy for the upcoming fiscal year to solve the problems of the banking sector. They said that the National Bank should adopt flexibility in matters including credit classification and non-banking asset management to solve the problems of the banking sector. 

At an interaction program on the upcoming monetary policy organized by the Society of Economic Journalists of Nepal (SEJON) on Tuesday, stakeholders said that while supporting the government's goal of high economic growth, the challenge of maintaining economic stability should be addressed equally.

At the program, Prachanda Bahadur Shrestha, President of the Confederation of Banks and Financial Institutions, Nepal (CBIFIN), said that the country's banking sector is currently under serious pressure. He stressed that the upcoming monetary policy should address the real problems facing the banking sector and strike a balance between financial stability and economic revival.

He said that although there is sufficient liquidity in the banking system on paper, the demand for credit in the real economy has decreased and business confidence has weakened. “The ability of even strong and capable businesses to repay loans has been affected due to the dry cash flow in various economic sectors,” he said. “This situation has directly affected the asset management of banks. Banks are forced to accumulate non-banking assets worth more than Rs 60 billion.” He said that as many borrowers were unable to repay their loans, banks had to accept collateral and a large amount of banks’ capital was trapped in non-performing assets. This has reduced the ability of banks to invest further in the economy, he said.

Nepal Bankers Association President Santosh Koirala pointed out the need to review the non-performing asset (NPA) classification and provisioning system in particular. He said that the current system of provisioning 5 percent in one month, 15 percent in three months, 50 percent in six months and 100 percent in a year did not give enough time to both banks and borrowers. He urged for amendments to the NPA-related system to provide 'breathing space' to both borrowers and banks. Similarly, he stressed on the need to complete the process of establishing an Asset Management Company (AMC) expeditiously. 

Similarly, banking expert Alan Raj Bhattarai said that the biggest challenge of the current economy is the lack of demand for credit from the private sector despite the capacity. He was of the opinion that monetary policy should focus on solving structural problems in the banking sector rather than reducing or increasing interest rates. According to him, while the country's economic growth rate is around 3.85 percent, the non-performing loans (NPL) of the banking sector has reached 4.36 percent, which is above the generally accepted level in the past. However, he said that although foreign exchange reserves and remittances are in a satisfactory state, the expansion of credit to the private sector is limited to 5.7 percent, indicating weak demand in the economy.

Bhattarai mentioned that banks have liquidity of about Rs 80 trillion, loans of about Rs 60 trillion have been disbursed, and the CD ratio remains at 79 percent, but investable resources have not been utilized. According to him, despite low interest rates, stable deposits, and sufficient lending capacity, the lack of investment demand from the private sector has created a challenge in the banking system due to excess liquidity. Bhattarai said that another challenge in the banking sector is the increasing asset-liability mismatch and repricing risk. He said that structural reforms are needed as long-term loans are being disbursed based on short-term deposits.