Kathmandu. Bankers have said that although there are signs of general improvement in the pace of loan recovery in the banking system till the third quarter of the current fiscal year, it is still not satisfactory.
Bankers believe that the recovery of interest which was under pressure in the two quarters of the current fiscal year has eased in the last period, but it cannot be called a decisive reform. According to them, although there is some psychological positivity in the market, the recovery has not taken the expected pace due to lack of cash flow.
Although the expectation of policy clarity has increased with the change of government, the delay in payment related to the construction sector has had a direct impact on the credit quality of the banks.
Banks have been forced to incur additional loan losses due to non-payment of regular interest from big loans linked to contractors. The increase in the compulsion to make minimum provisioning by keeping some loans in the ‘watch list’ will also put pressure on the profit of the banks.
The tension in the borrower-bank relationship, as seen in recent years, has now eased. The reduction in the incidents of obstruction and intimidation against the employees collecting loans by going to the field and the active participation of the security agencies in this has made it easier for the banks to work. While this may not have completely improved the recovery process, it has helped to bring the recovery out of the blockage.
According to banking sector officials, the current situation seems to be a phase of seeking stability. While large loans are yet to be settled, small and medium-sized loans have seen a partial recovery.
What is even more interesting is that some borrowers who have been out of contact for a long time have started coming back to the bank in recent times. They have started bringing proposals for installment restructuring, extension of time or partial payment. Which is being carefully evaluated by the banks.
On the other hand, the pressure of outstanding interest which was increasing at a high rate in the past is now gradually declining. This indicates that banks are focusing on old risk management rather than adding new problems. However, whether this trend is sustained in the long term will depend on the future economic activity.
Looking at the situation till the third quarter, the loan recovery of the banks has neither improved significantly nor has it deteriorated further. Unless the economy picks up, government spending flows and private sector investment morale improves, bank recovery is unlikely to accelerate. Therefore, bankers conclude that it is appropriate to take the current improvement only as an early sign.
