Kathmandu: Nepal Rastra Bank (NRB) has launched on-site supervision at the country’s 10 largest commercial banks as part of an international-standard loan portfolio review, with joint teams from the central bank and Bangladesh-based audit firm Howlader Yunus & Company commencing fieldwork on Sunday.
Teams comprising two NRB officials and two auditors from Howlader Yunus visited all 10 banks—Global IME, Nabil, Nepal Investment Mega, Rastriya Banijya, Kumari, Laxmi Sunrise, Prabhu, Himalayan, NMB, and NIC Asia—holding initial discussions with senior management. These banks, selected based on their high credit exposure as of mid-March financial statements, account for the bulk of Nepal’s commercial lending.
The review fulfills a key condition of Nepal’s Extended Credit Facility (ECF) agreement with the International Monetary Fund (IMF), which required an independent, international-level assessment of loan quality at major banks. Howlader Yunus was selected through NRB’s procurement process, with preparatory data collection beginning before the Dashain holidays.
Over the coming days, the joint teams will conduct in-depth file-by-file analysis of credit dossiers, core banking systems, project utilization reports, and repayment patterns. More than 30 indicators will be evaluated—not only to verify proper end-use of funds and project viability but also to scrutinize repayment sources and practices.
While banks maintain adequate collateral coverage and loan loss provisions—reducing the likelihood of major systemic issues—industry insiders acknowledge prevalent malpractices. These include diverting loans from approved purposes to unrelated uses, or using new borrowing to repay old debt—a phenomenon known as “evergreening.” Such practices, though collateralized, fall outside standard banking norms and could trigger reclassifications during the review.
Bankers express concern that the exercise may lead to higher provisioning requirements, potentially denting profitability. “We have strong collateral backing, which is positive,” one senior banker said on condition of anonymity. “But how the review treats evergreening, cross-utilization of funds, or reliance on income from unapproved projects will be decisive.”
The IMF has long questioned the accuracy of Nepal’s reported non-performing loan (NPL) ratios, suspecting evergreening masks underlying asset quality deterioration. This independent review aims to provide a transparent, third-party validation of portfolio health, with findings expected to influence future regulatory and provisioning frameworks.
The process underscores growing international scrutiny of Nepal’s banking sector amid post-pandemic recovery challenges, including sluggish credit demand and rising operational risks.
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