Kathmandu. There are signs of some important changes in the banking sector.
The Nepal Rastra Bank (NRB) is studying to reform the rules for classifying non-performing loans. According to NRB sources, the proposal to give some flexibility in the time period to keep the loan in sub-standard, doubtful and bad category is currently being studied and discussed.
According to the current rules, banks have to keep a lot of provisions when the loan quickly falls into the bad category. This puts pressure on the profitability of the banks. If the proposed changes are implemented, the loan classification will be delayed and the provision cost of the banks may be reduced. This is expected to increase the profitability of banks.
According to market analysts, such a change could make the financial statements of banks look better. However, it has to be carefully analysed whether the increase in profits is a real improvement or an effect of the accounting system.
Late loan classification can also lead to delayed risk. Which can have a big impact in the future. Therefore, it is necessary to take precautions in this matter.
Similarly, banking sector experts say that if the central bank makes such a reform, it can be taken as a positive step. It is expected that banks will get some relief if such a system is implemented in the current situation of low interest rates, economic slowdown, problems in loan recovery and business pressure.
At the same time, liquidity in the banking system may increase and the financial condition of banks may improve. It is also expected to have a positive impact on the stock market.
According to bank sources, the proposal is under final discussion and is expected to be made public before the next monetary policy review.
