IMF‚ WB to assess Nepali financial system soon
KATHMANDU:
A comprehensive analysis and assessment of the Nepali financial sector is on cards as the International Monetary Fund (IMF) and World Bank (WB) will conduct a detailed financial sector assessment here from the beginning of November.
The World Bank and IMF have scheduled a joint financial sector assessment under its Financial Sector Assessment Programme (FSAP) for November 2013 to February 2014, according to senior resident representative of IMF for Nepal Thomas J Richardson.
FSAP — established in 1999 — is a comprehensive and in-depth analysis of a country’s financial sector. It gauges the stability of the financial sector and assesses the financial sector’s potential contribution to growth and development.
“FSAP examines the soundness of the banking and other financial sectors of the country by conducting stress tests and rating the quality of banks against accepted international standards, and identifies the main vulnerabilities in the financial system,” informed Richardson.
Since the FSAP was launched in 1999 — after the Asian crisis — around 140 countries have completed the programme. This is the first time for Nepal. “The programme also looks into issues of access to banking services and development of capital markets especially in countries like Nepal,” he added.
IMF’s staff visit or Article IV Consultation has pointed out the existence of balance sheet risks due to real estate exposure in the Nepali financial system since the past three years.
IMF has been looking closely at the Nepali financial system following the severe liquidity crunch in 2010.
“Stress in the financial sector receded with strong remittance, but serious balance sheet and other risks remain,” according to the Article IV Consultation report, released in 2012.
It had stressed that despite financial soundness, indicators show some improvements and concerns remain about the reliability of the reported data.
“Some financial institutions show worryingly high levels
of non-performing assets and we have reservations on the
asset quality as well,” pointed out Richardson.
IMF had pointed the need for significant restructuring of the financial system to tackle the presence of balance sheet risks from concentrated exposure to a moribund real estate market.
The reports have expressed suspicions that balance sheet risks of financial institutions are likely to be substantially higher than suggested by the reported data.
“Though Nepal Rastra Bank (NRB) is bringing changes in the regulations to strengthen the financial system, we are hopeful that a detailed study like this will help us identify areas where NRB’s effort is not sufficient,” expressed an official at the central bank.
Unlike stress testing and Internal Capital Adequacy Assessment Process (ICAAP) reports that are not made public by NRB, the FSAP report will be a public document.
Source: The Kathmandu Post
