Attempts to cosmetically suppress non-performing loans (NPLs) on paper could push the banking system toward a severe crisis. Policies such as extending loan classification deadlines or easing provisioning requirements may temporarily inflate banks' profits and dividends, but they fail to resolve the core issue. Unless borrowers' actual income and repayment capacity improve, merely extending classification timelines only piles on additional principal and interest, making future recovery even more improbable. As it stands, one commercial bank's NPL has already crossed 15%, while a finance company's has surpassed 60%.
Given the market slowdown, the massive exodus of youth abroad, and declining entrepreneurial interest among the younger generation, the likelihood of an immediate rebound in domestic demand or borrower repayment capacity remains slim. On the other hand, attempting to dilute the NPL ratio through aggressive new credit expansion is also impractical in the current economic climate.
Under these circumstances, the most viable path forward is facilitating the swift sale of non-banking assets (NBAs). To achieve this, Nepal Rastra Bank should lead an initiative to build a unified digital portal where non-banking assets from all banks are listed transparently with their prices. Much like an e-commerce platform, the system should allow smooth online purchasing—awarding the property to the highest bidder when multiple applications are received, or enabling a direct purchase if there is only a single applicant. Furthermore, if the state provides guarantees ensuring these assets are free from legal disputes, buyer confidence will grow, enabling banks to efficiently convert accumulated physical assets into liquid cash and safeguard the financial system.
Comment