NPL level falls as borrowers, lenders become 'conscious'
KATHMANDU, Aug 30:
In what indicates that the assets quality of banking industry is on track of improvement, non-performing loans of commercial banks fell by 0.3 percentage points in Fiscal Year 2014/15.
Average non-performing loans of 30 commercial banks inched down by 0.3 percentage points to 3.16 percent in 2014/15.
A comparative sheet of financial results of commercial banks compiled by Sanima Bank Ltd (Sanima) shows total loans extended by commercial banks stood at Rs 1,090.37 billion at the end of 2014/15. With average NPL standing at 3.16 percent of total loans, a total of Rs 34.46 billion floated by 30 banks went default in the review year. This means Rs 3 out of every Rs 100 lent by banks have turned bad loans.
The comparative sheet shows that eight commercial banks contained their NPL below one percent in the last fiscal year. Similarly, NPL of 12 banks was between 1 and 2 percent, while eight banks had NPL between 2 and 5 percent. Prabhu Bank Ltd and Grand Bank Ltd have NPL above the regulatory requirement of 5 percent. Prabhu's NPL stands at 7.39 percent, while Grand has the highest NPL of 36.2 percent.
Prabhu's high NPL is due to the bad loans it inherited following the merger with the then Kist Bank Ltd which ran into trouble due to weak corporate governance.
Prabhu is in the process of acquiring Grand. Ashok Sherchan, CEO of Prabhu, said the bank's NPL will stand at around 15 percent once the acquisition is complete. "With the size of total loans going up, the portion of NPL will go down. Also, our focus will be on recovering bad debts," added Sherchan.
Sanima is at the top of the list of commercial banks in terms of lowest NPL. The bank reported 0.07 percent NPL in the last fiscal year. Sanima's total loans flow stood at Rs 28.23 billion at the end of 2014/15. It's NPL was 0.02 percent in 2013/14 when its total loans amounted Rs 20.37.
Similarly, Nepal SBI Bank (0.19 percent), Century Bank Ltd (0.27 percent), Standard Chartered Bank Nepal Ltd (0.28 percent) and NMB Bank Ltd (0.42 percent) are the other best-performing banks in terms of NPL figures. Machhapuchchhre Bank Limited, Everest Bank Ltd and Lumbini Bank Ltd are the other banks who have less than one percent NPL.
Bhuvan Dahal, CEO of Sanima, told Republica that the assets quality of banks is improving due to cautions that banks are taking while floating loans. "Banks are very conscious when it comes to extending loans these days. Many rules of the central bank in regard to reducing NPL have also helped the banks in bringing down their bad debts ratio," added Dahal.
Rise in NPL level of banks means that the number of borrowers stopping or discontinuing debt servicing is also increasing. Bankers say that rise in NPL hampers profit of banks and the return to their shareholders as their interest income goes down while they are required to put aside more money for loan loss provisioning.
Parshu Ram Kunwar, a banking expert, said that falling NPL level of banks can also be attributed to the growing consciousness among borrowers that they have to repay their loans. "Earlier when the industry was largely dominated by the government-owned banks, people weren't much serious about repaying loans. It has changed now," Kunwar, who has also worked in a management team of Nepal Bank Ltd when its NPL was at an alarmingly high level, said.
"A borrower pays back loans only of s/he has both willingness and capacity to repay. Earlier, people were less willing to repay loans earlier even they had the capacity. This is changing in recent years. Now they are more willing to repay loans. It can be counted as one of the major factors behind falling NPL in recent years," added Kunwar.
Source: Republica
