Market Watch

New NRB directives raises NBB’s NPL

Published by Octron on November 15, 2010

The non-performing loans (NPL) of Nepal Bangladesh Bank (NBB) rose to above 10 percent after the Nepal Rastra Bank (NRB) didn’t recognise its reduced size NPL which had been possible after restructuring of two big loans of the bank. The NBB had showed its NPL around 4 percent until last fiscal year. The central bank rejected the restructuring of two big loans provided to Memento Apparel and Space Time Network, saying that the bank didn’t follow due restructuring procedures of the central bank.

The central bank told the NBB to make cent percent provisioning of both the loans and put them under the category of bad loans. This is why the size of the bank’s NPL raised. As per the new directives on restructuring of loans, such loans should be categorised under bad loan. Earlier, such loans could be categorised as past loans and termed good loans. The central bank says the policy change was guided by international good practices.

Although the banks should make provisioning of just 12.5 percent of the restructured loan, the NBB was told to make it cent percent because it didn’t follow the due procedure, said the NRB official. NRB’s on-site supervision concluded that the real NPL of the NBB should be above 10 per cent. The NRB also didn’t entertain the application of NBB to expand its branch, said a senior NRB official. A bank having NPL over 5 percent cannot expand its branch as per the NRB directives. The monetary policy for the current fiscal year has also made the central bank’s approval mandatory for branch expansion.

NBB General Manager Govinda Babu Tiwari admitted that the central bank’s new directive on restructuring of the loans raised the NPL level of the NBB. The central bank’s supervision also identified that a single board member representing three board sub-committees of the four such committees of the bank has resulted in intervention in different committees by the same person. The executive sub-committee of the bank formed to initiate the merger process with Nepal Sri Lanka Merchant Bank Limited was also found to have involved in the purchase of goods and approval of loans during the on-site supervision.

“Intervention of a sub-committee in unrelated sectors shows that the committee members have vested interest,” said the NRB official. The credit sub-committee usually looks into credit related decisions. The supervision report also stated that the board was making unnecessary intervention in the work of management, according to the NRB official. But, Tiwari said he didn’t witness any intervention. Although the central bank said the NBB was yet to recover loans from people related to NB Group, the key promoter of the bank, Tiwari rejected the central bank’s claims.

Source: Kantipur

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