In a major blow to bankers, the Nepal Rastra Bank (NRB) has indicated
that it will not renege on its decision, making five percent
provisioning on suspicious loans mandatory for banks and financial
institutions.
NRB Spokesperson Min Bahadur Shrestha said the central bank would not roll back its directive but could consider facilitating the bankers to implement the provision by extending time or other measures. “The governor has been holding talks with bankers. He is eager to help them regarding the case,” he said.
According to him, the directive was issued much latter than its expected date and adding category of watch list was in line with making reporting system compatible to International Financial Reporting System.
Banks and financial institutions should provision 5 percent even for the good loans if they have to be categorised under the watch list. They are normally required to provision one percent for the good loan.
Bankers have, however, claimed that the directive to increase loan provision would hit their profitability. “As many borrowers don’t maintain professional balance sheet, they cannot produce the balance sheet in standard format,” said a banker. “If we implement the NRB’s directive to the word, we will have to make provisioning even against good borrowers.”
Nepal Bankers’ Association President Upendra Poudyal said that each bank would have to set aside amount in the range of Rs 100 million to Rs 400 million in provisioning.
According to him, the banks have to make provisioning of five percent when a good borrower shows negative cash flow or negative working capital, consequently hitting the banks. “Although the new directive may have been issued to promote good governance, implementing this in the current context looks impractical,” he added. Himalayan Bank Chief Executive Officer Ashoke Rana said that his bank has put lendings on hold for the last one month to study the impact of central bank’s directive.
But NRB Spokesperson Shrestha insists the directive will help bank’s financial health by discouraging misuse of loans.
“There has been a trend of taking out a loan for one purpose and using them for different purposes,” noted Shrestha. “Such borrowers may have been paying the installments in time. But it is the misuse of loan, regardless.”
According to Shrestha, the decision to add watch list under loan category followed suggestions from the consultants of World Bank to ensure financial stability in Nepal’s banking sector.
“WB and IMF representatives have been pressing us to implement the provision for long. But we resisted them as we wanted to implement it in right time by considering Nepal’s context,” he said.
Under the new directive, the loan should be put under the watch list category if a borrower has a history of defaulting loan instalments. For example, if a borrower has failed to repay the principal and interest in monthly, quarterly or half-yearly instalments as planned, the loan will come under watch list. Likewise, a loan provided to a firm against the security of receivable amount will come under the new category if such securities will not be received in the next three months. A loan issued to a firm which has not made payment to suppliers of raw materials for more than three months will also come under the list.
source: the kathmandu post,29 March 2015
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NRB Spokesperson Min Bahadur Shrestha said the central bank would not roll back its directive but could consider facilitating the bankers to implement the provision by extending time or other measures. “The governor has been holding talks with bankers. He is eager to help them regarding the case,” he said.
According to him, the directive was issued much latter than its expected date and adding category of watch list was in line with making reporting system compatible to International Financial Reporting System.
Banks and financial institutions should provision 5 percent even for the good loans if they have to be categorised under the watch list. They are normally required to provision one percent for the good loan.
Bankers have, however, claimed that the directive to increase loan provision would hit their profitability. “As many borrowers don’t maintain professional balance sheet, they cannot produce the balance sheet in standard format,” said a banker. “If we implement the NRB’s directive to the word, we will have to make provisioning even against good borrowers.”
Nepal Bankers’ Association President Upendra Poudyal said that each bank would have to set aside amount in the range of Rs 100 million to Rs 400 million in provisioning.
According to him, the banks have to make provisioning of five percent when a good borrower shows negative cash flow or negative working capital, consequently hitting the banks. “Although the new directive may have been issued to promote good governance, implementing this in the current context looks impractical,” he added. Himalayan Bank Chief Executive Officer Ashoke Rana said that his bank has put lendings on hold for the last one month to study the impact of central bank’s directive.
But NRB Spokesperson Shrestha insists the directive will help bank’s financial health by discouraging misuse of loans.
“There has been a trend of taking out a loan for one purpose and using them for different purposes,” noted Shrestha. “Such borrowers may have been paying the installments in time. But it is the misuse of loan, regardless.”
According to Shrestha, the decision to add watch list under loan category followed suggestions from the consultants of World Bank to ensure financial stability in Nepal’s banking sector.
“WB and IMF representatives have been pressing us to implement the provision for long. But we resisted them as we wanted to implement it in right time by considering Nepal’s context,” he said.
Under the new directive, the loan should be put under the watch list category if a borrower has a history of defaulting loan instalments. For example, if a borrower has failed to repay the principal and interest in monthly, quarterly or half-yearly instalments as planned, the loan will come under watch list. Likewise, a loan provided to a firm against the security of receivable amount will come under the new category if such securities will not be received in the next three months. A loan issued to a firm which has not made payment to suppliers of raw materials for more than three months will also come under the list.
source: the kathmandu post,29 March 2015
LINK
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