Kathmandu. As the economy slows down, the pressure on banks and financial institutions to recover loans is increasing.
Current fiscal year 2082. Although the bankers are more active due to the pressure to collect installments as the second quarter of 83 months approaches, the recovery has not been easy. In order to make the second quarter financial statement satisfactory, banks have given priority to recovering old loans rather than extending new loans. However, due to weak cash flow of borrowers, the expected improvement in loan recovery has not been seen.
As business activity slows down, many borrowers are requesting a postponement to pay the installments. Even if the bank representatives reach for recovery, the borrowers are not in a position to pay immediately.
Bankers say that the problem has worsened as hotels, construction and related businesses have been further affected after the Genji agitation. According to them, most of the borrowers are unable to repay.
The financial condition of borrowers has weakened due to the decline in sales in the industrial sector, shrinking profits and slowing real estate transactions. Some borrowers are willing to pay only interest, while others are demanding rescheduling and restructuring.
As the pressure on recovery increases, there is also a concern that the non-performing loans in the banking sector will increase. According to the Nepal Rastra Bank (NRB), the non-performing loans of commercial banks have crossed 5 percent. If there is no substantial improvement in recovery by mid-January, the non-performing loans will increase further, which will have an impact on the profitability of the banks and the overall banking stability.
Meanwhile, credit expansion has been sluggish even though deposits in the banking system are increasing. The low credit flow compared to the growth of deposits indicates that confidence in the economy is weak. In such a situation, the stakeholders are of the view that policy initiatives are necessary to revitalize the economic activities instead of increasing the pressure only on loan recovery.
