Bijaya Parajuli
Kathmandu: Nepal’s banking sector has reported an encouraging uptick in loan recoveries at the close of the fiscal year, driven by property auctions and sales of non-banking assets.
But industry leaders and analysts warn the progress may be short-lived amid structural economic fragilities and mounting challenges from local authorities.
Several leading bankers confirmed that outstanding interest collections improved by up to 30 percent compared to the same period last fiscal year, with non-performing loans (NPLs) being reclassified and a modest revival in debt repayments observed across the sector.
“Recovery has improved notably this Ashad (mid-July), with a visible uptick in both auctions and non-banking asset sales,” said Manoj Gyawali, CEO of Nabil Bank.
Other senior executives echoed this sentiment. Machhapuchchhre Bank CEO and Bankers’ Association President Santosh Koirala noted that his bank alone sold assets worth Rs. 300–350 million, underscoring a broader trend across the financial system.
Yet this fragile progress faces severe headwinds, primarily from a lack of cooperation at the local government level. Bankers report repeated incidents where municipal officials refused to provide access letters for properties up for auction—a mandatory procedural requirement.
In several districts, including Pokhara, Budhanilkantha (Kathmandu), and Janakpur, local resistance led to disruptions in asset recovery, and even physical assault against bank staff was reported.
Despite these obstacles, bankers are cautiously optimistic. A recent directive from Nepal Rastra Bank (NRB), the central bank, extended key repayment deadlines for working capital loans by two years and eased regulatory pressures on small and medium-sized enterprises (SMEs). Under the new guidance, banks can restructure loans up to Rs. 20 million for sectors such as agriculture and energy, provided 10 percent of the interest is repaid.
These policy moves, together with a record influx of remittances and robust foreign exchange reserves—reaching US$ 18.65 billion—have helped create the appearance of a stabilizing financial environment.
Imports are up 13.1 percent year-on-year, and revenue collection has exceeded the previous year’s total by over Rs. 100 billion, suggesting improved liquidity.
However, there is growing concern that the recovery is being fueled not by productive investment or job creation, but by property speculation and corporate asset sales.
“Some recovery has been achieved, but it’s largely cosmetic,” said Ram Chandra Khanal, CEO of Kumari Bank. “We’re seeing corporates liquidating real estate just to meet interest obligations. That’s not a sustainable strategy.”
High-profile business groups, including Batas, Sumargi, Jyoti, and Shakya, have all moved to offload assets to meet loan obligations. Former Minister and businessman Motilal Dugar sold a luxury hotel under construction in Biratnagar. Poultry magnate Gunchandra Bista is finalizing the sale of Rs. 1 billion worth of land. Other transactions include hotel sales in Bhairahawa and large land transfers in Kathmandu and Biratnagar.
The growing trend of using income from one project to repay loans on another—deviating from traditional banking norms—has also raised concerns. While central bank supervision has tolerated such practices to maintain financial stability, critics argue it papers over deeper cracks in the corporate sector.
“Normally, the revenue from the funded project should repay its own loan,” said a senior NRB superviser. “But we’re allowing some flexibility given the circumstances. If the overall repayment is on track, we compromise.”
Some banks remain cautious. Laxmi Bank CEO Ajay Bikram Shah and Citizens Bank CEO Ganeshraj Pokharel both described the recovery as marginal. “Big-ticket buyers are still missing. Most of the activity is in mid-size properties worth Rs. 20–40 million,” they said.
For NIC Asia Bank CEO Roshan Neupane, the trend is clear: “Even small and mid-size businesses are selling assets to repay loans. Though deal volumes aren’t high, sentiment has slightly improved.”
Economic data supports this tentative optimism. Credit flow to the private sector rose by 8 percent (Rs. 408 billion), the highest in three years. Meanwhile, the current account and balance of payments remain in surplus by Rs. 307 billion and Rs. 491 billion, respectively.
Yet concerns persist. While the construction sector showed signs of recovery in the third quarter, real GDP growth is forecast at 4.61 percent for the fiscal year—barely above last year’s 3.86 percent. And with the government failing to catalyze job creation or infrastructure investment, some fear the central bank’s real-estate-driven stimulus could exacerbate long-term risks.
“This is a directional improvement, not a structural one,” warned Jyotiprakash Pandey, CEO of Nepal Investment Mega Bank. “If we rely on cheap credit and asset sales without broader reform, this recovery won’t last.”
The central question remains whether Nepal’s recent financial stabilization signals a genuine turnaround—or just a pause before the next fiscal storm. For now, bankers are taking what gains they can—but with both eyes on what’s to come.
Comment Here