NRB to seek clarification from Grand Bank
KATHMANDU:
Nepal Rastra Bank (NRB) will soon seek clarification from Grand Bank on why the banking sector regulator should not declare the class ‘A’ financial institution ‘problematic’.
The decision to seek clarification from the bank was taken by NRB’s board meeting held today.
“We took this decision as the institution failed to prop up its financial health. The management of NRB will soon communicate with the bank and seek answers,” a source, who took part in today’s meeting, told The Himalayan Times.
If NRB deems the response provided by the bank unsatisfactory, it will declare Grand Bank ‘problematic’, making it the first commercial bank in years to get that status.
Problematic financial institutions are generally given a period of around six months to implement reforms and shore up its finances. If they fail to do so within the deadline, NRB takes further action.
The fragile financial condition of Grand Bank — which was highly exposed to the real estate market when property prices were at a peak — was exposed in August last year, when it published its balance sheet. It showed capital adequacy ratio (CAR) — which gauges a banking institution’s strength to absorb shocks and ability to extend loans — hovering around 4.07 per cent.
This ratio was way below minimum regulatory requirement of 10 per cent for commercial banks like Grand. The bank’s CAR had taken a dip largely because of accumulation of bad loans, which stood at 19.09 per cent of the total credit portfolio in mid-July.
Then in September, NRB took prompt corrective action against the bank and barred it from collecting fresh deposit and extending new loans.
But since then, the hole in Grand Bank’s balance sheet has grown even bigger.
As of mid-October, the bank’s CAR stood at an alarming 2.55 per cent, while proportion of bad loans to total credit had soared to 25.49 per cent.
As more loans extended by the bank are turning sour, it is being forced to keep aside more and more funds for loan loss provisioning.
In the last fiscal year, the bank set aside a whopping Rs 1.93 billion for loss provisioning. In the first quarter of this fiscal year, it allocated Rs 292.57 million for the same purpose.
Although this money could be enrolled as income once defaulters return the outstanding credit, when will the bank be able to retrieve those due amount, is still a big question.
As the bank is not being able to recover the bad debt, its net worth fell to Rs 295.76 million as of mid-October, as against Rs 2.41 billion in the same period a year ago.
Source: THT
