NRB provisioning hits profit of FIs
KATHMANDU, MAR 04:
A little more than two dozen finance companies and development banks registered losses in the second quarter as they strained under provisioning for bad loans.
Among the licensed financial institutions that have published their financials, the unaudited financial statement of 15 development banks and 10 finance companies for the second quarter show cumulative losses of more than Rs one billion. The average non-performing assets (NPA) of these financial institutions are higher than 16 per cent.
“Most financial institutions are in distress due to problems with recovering real estate loans,” pointed out president of Nepal Finance Companies Association (NFCA) Rajendra Man Shakya.
Among the financial institutions that have ended up in the red, Siddhartha Development Bank has recorded a loss of Rs 203 million with NPA higher than 14 per cent and Vibor Bikas Bank has recorded a loss of Rs 115 million with NPA of 33.78 per cent. Likewise, Nepal Finance Company has suffered a loss of Rs 23.9 million, the highest among finance companies.
Among commercial banks, Kist Bank registered a loss of Rs 70 million, in the second quarter.
Non-performing assets of Arun Finance is 62.4 per cent — the highest. Likewise, NPAs of Progressive Finance, Patan Finance, and Social Development Bank are also above 30 per cent.
“We hope the recovery situation will improve by the end of the fiscal year,” said Shakya.
Finance companies have provisioned about Rs two billion against possible loan loss, while commercial banks have provisioned about Rs four billion.
“Along with the loans under real estate, loans floated under other headings have also been extended for realty, that is why many financial institutions are in trouble,” said Shakya. The portfolio of development banks and finance companies contain loans worth about Rs 23 billion. Their collective loans advanced stands at about Rs 194 billion.
Financial institutions have blamed the stringent rules of provisioning laid by Nepal Rastra Bank (NRB). Central bank’s regulation requires financial institutions to provision 25 per cent of the principal and due interest if borrowers fall behind the payment schedule for three months, 50 per cent if delay in repayment crosses six months, and 100 per cent provisioning is required.
“We have requested NRB in writing to revise the basis of the provisioning slab so that the balance sheets of financial institutions will not show losses,” said Shakya, adding that financial institutions will not distribute dividends till loans are recovered or written back if the central bank extends 100 per cent provisioning for three years of default.
Due to comfortable liquidity situation in the financial system since the last one year, commercial banks had lowered both deposit and lending rates to some extent. However, class ‘B’ and ‘C’ financial institutions could not lower the interest mostly to retain deposits and the higher cost of operation does not allow them to start lending at a low rate soon. The squeezed spread rate also hurts their net interest income.
Source: THT
