Finance Companies are facing increased non-repayment of loans with the Non-Performing Loan (NPL) as of mid-May reaching 16 percent from 9.3 percent as of mid-May 2013, according to Nepal Rastra Bank (NRB) statistics.
The NPL level increases when the borrowers are not able to pay loans on time. The NRB directive requires banks to make 100 percent provisioning provided the nonpayment of the loan crosses a year, 50 percent if it crosses six months and 25 percent if payment deadline crosses three months. Banks and financial institutions are, however, required to make provisioning of one percent for good loans.
Failure to recover loans by the existing crisis-ridden finance companies and those heading towards being declared troubled cooperatives resulted in high level of NPL, said a senior NRB official.
“After a financial institution is declared crisis ridden, it cannot provide extra loan which makes good loans also bad if that is not regularly repaid,” said a senior NRB official. When the good loans are paid, the bad loans continue to remain unless the loan collateral are sold.
There are seven finance companies which have been declared crisis-ridden. They are Nepal Share Market and Finance Limited, Crystal Finance, Kuber Merchant Finance, Himalaya Finance, Capital Merchant Banking and Finance, World Merchant Banking and Finance and General Finance. Samjhana Finance which was also declared crisis-ridden has been sent into liquidation process.
“There has not been good recovery of loans from these finance companies,” said the NRB official. “There are other 4-5 finance companies in troubled situation and are also facing difficulties in recovering loans.”
According to him, even if there is good collateral to recover the loans, the tendency of filing a case at court makes financial institutions impossible to sell the assets.
As majority of the loans of the troubled finance companies have gone to the promoters and directors without adequate collateral, the companies are facing difficulty to recover them.
Due to high level of NPL maintained by finance companies in an average, the overall NPL level of banks and financial institutions has risen to 4.2 percent in mid-May this year from 3.9 percent a year ago.
NPL of commercial banks has, however, remained intact at 3 percent while development banks reduced the NPL level at 5.6 percent from 5.8 percent last year.
source: the kathamandu post,3 july 2014
LINK
The NPL level increases when the borrowers are not able to pay loans on time. The NRB directive requires banks to make 100 percent provisioning provided the nonpayment of the loan crosses a year, 50 percent if it crosses six months and 25 percent if payment deadline crosses three months. Banks and financial institutions are, however, required to make provisioning of one percent for good loans.
Failure to recover loans by the existing crisis-ridden finance companies and those heading towards being declared troubled cooperatives resulted in high level of NPL, said a senior NRB official.
“After a financial institution is declared crisis ridden, it cannot provide extra loan which makes good loans also bad if that is not regularly repaid,” said a senior NRB official. When the good loans are paid, the bad loans continue to remain unless the loan collateral are sold.
There are seven finance companies which have been declared crisis-ridden. They are Nepal Share Market and Finance Limited, Crystal Finance, Kuber Merchant Finance, Himalaya Finance, Capital Merchant Banking and Finance, World Merchant Banking and Finance and General Finance. Samjhana Finance which was also declared crisis-ridden has been sent into liquidation process.
“There has not been good recovery of loans from these finance companies,” said the NRB official. “There are other 4-5 finance companies in troubled situation and are also facing difficulties in recovering loans.”
According to him, even if there is good collateral to recover the loans, the tendency of filing a case at court makes financial institutions impossible to sell the assets.
As majority of the loans of the troubled finance companies have gone to the promoters and directors without adequate collateral, the companies are facing difficulty to recover them.
Due to high level of NPL maintained by finance companies in an average, the overall NPL level of banks and financial institutions has risen to 4.2 percent in mid-May this year from 3.9 percent a year ago.
NPL of commercial banks has, however, remained intact at 3 percent while development banks reduced the NPL level at 5.6 percent from 5.8 percent last year.
source: the kathamandu post,3 july 2014
LINK
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