Finance companies NPL jumps to 9.9 percent
KATHMANDU, MAR 23 -
Non-performing loans (NPL) of finance companies have soared as a result of increasing defaults on realty loans. According to Nepal Rasta Bank’s (NRB) latest report, their aggregate NPL has reached 9.9 percent of the total loans as of the end of the second quarter.
More worrisome is the fast rate at which the NPL has been swelling. The NPL has jumped from 5.43 percent at the end of the last fiscal to 8.71 percent at the end of Q1 in this fiscal.
NRB officials attributed the high NPL level, which is almost double the international standard of 5 percent, to the heavy exposure of finance companies to the realty sector and their bad corporate governance.
“In the past, finance companies lent heavily to the real estate sector which is currently stagnant, resulting in increased NPL,” said Bhasker Mani Gnawali, spokesperson of NRB. “However, due to stringent monitoring by the central bank, they will see a correction in this ratio in the future.” He added that the current scenario was a bad hangover of past activities.
Bankers, on the other hand, expect the problem to prolong. “We are facing a lot of difficulties in recovering our loans to the realty sector,” said Rajendra Man Shakya, president of Finance Companies’ Association of Nepal. “A majority of realty developers are not paying interest on their borrowings which is eroding the quality of our assets day by day.”
A stagnancy in realty transactions is adding to their problems. If this situation continues, a lot of finance companies will come under strict action of the central bank, according to Shakya. “How many companies will the regulator target for prompt corrective action (PCA)?” asked Shakya. “The aggregate NPL of 9.9 percent is not because of a few companies getting into trouble, the whole system is suffering.”
Bankers are also complaining that a huge amount of liquidity under provisioning for loan loss due to the high NPL is contracting their ability to do business. “We are asking NRB for a relaxation in the loan loss provisioning,” said Shakya. “Our collateral safety is very good as we have lent only up to 50 to 60 percent of its market value. Therefore, if NRB give a bit of relaxation on provisioning, our ability to do business will increase.”
NRB, however, is in no mood to relax the provisioning. Deputy Governor Maha Prasad Adhikari said that there would be no compromise on the established norms of prudent financing.
“The only way to solve the problem is to be efficient in NPL management,” added Adhikari. “They should be stricter in recovering bad loans.” He said that an NPL of 9.9 percent means that 90 percent of their assets is yielding. “So, it doesn’t mean that the whole system will collapse,” added Adhikari. “Nonetheless, they should be more spot on while recovering as well as further lending.”
The Finance Companies’ Association has scheduled an interaction programme on March 23 inviting officials from the central bank to discuss the issue and seek an appropriate solution.
Source: Kantipur
