The International Monetary Fund (IMF) has raised concerns that Nepali banks are using loose loan‑classification practices, keeping weak provisions for risk, expanding evergreen lending, and operating with weak credit‑risk management systems.
In Kathmandu, a new review shows rising credit risk in large project loans issued by commercial banks. Many projects have not made the physical progress expected for the size of the loans they received.
A Bangladeshi consulting firm, Hawlader Yunus & Company, is testing the loan quality of 10 major commercial banks. Its early findings show slow construction progress compared with the volume of credit disbursed.
Officials at Nepal Rastra Bank (NRB) say they have found serious gaps in project lending. One official said banks have not seen physical progress that matches the size of their loans. The official added that some banks continue to raise credit limits even after projects begin operations, instead of reducing exposure, which the central bank views as a warning sign.
Commercial banks have issued large volumes of loans to hydropower, cement, hotels, industrial projects, and other infrastructure ventures. The study found that banks have not carried out effective field inspections or verified whether borrowers used the loans as intended.
NRB signed an agreement with Hawlader Yunus & Company on Bhadra 12, 2082, to conduct the loan‑quality test. The firm has completed field inspections and is analyzing the data.
The review shows that many banks have concentrated their lending in real estate, construction, housing, and wholesale trading. Some banks are close to hitting their sectoral concentration limits.
Under the agreement, the consultant must submit the final report by Magh 12, within five months of starting the work. NRB has asked the firm to deliver an initial report by December.
The loan‑quality test evaluates banks based on their credit policies, loan‑classification practices, collateral valuation, provisioning, and regulatory compliance. The consultant is reviewing loan files, core‑banking data, project‑investment status, and repayment records.
NRB selected banks with the highest loan exposure as of the end of Chaitra 2081. The review covers Global IME, Nabil, Nepal Investment Mega, Rastriya Banijya, Kumari, Laxmi Sunrise, Prabhu, Himalayan, NMB, and NIC Asia. Together, these banks hold about 63 percent of total commercial‑bank lending.
The IMF required Nepal to conduct a loan‑quality test of the 10 largest commercial banks before it could access the Extended Credit Facility. NRB hired an international consultant to meet this condition.
The IMF has warned that Nepali banks may be classifying loans too generously, keeping weak risk provisions, expanding evergreen lending, and operating with fragile credit‑risk systems.
