Financial stability concerns highlighted in NRB report

Kathmandu: Nepal Rastra Bank (NRB) has brought attention to the deteriorating quality of banks’ assets, raising significant concerns about the stability of banks and financial institutions (BFIs). The central bank’s latest ‘Financial Stability’ Report, unveiled on Wednesday, underscores various challenges currently impacting the financial sector.

According to the report, the proliferation of high interest rates on loans has markedly dampened overall demand, posing formidable obstacles to businesses across the nation. This decrease in loan demand has consequently led to reduced profitability for banks, coupled with a surge in non-performing loans, exacerbating the financial strain.

NRB officials highlighted the expansion of BFIs through mergers, urging heightened vigilance to mitigate emerging challenges. They also stressed the need to reassess the flexible monetary policies implemented during the COVID-19 pandemic, which have inadvertently weakened borrowers’ capacity to repay loans.

Despite these adversities, the report acknowledges that BFIs have managed to uphold sufficient capital, liquidity, and profitability. However, it warns of heightened complexities introduced by the expanding role of the non-banking financial sector, increasing interdependencies within the financial system.

Furthermore, the report notes a growing trend of financial resource exchanges among BFIs, insurance firms, cooperatives, and other entities, stimulating economic activities but also introducing new risks to the financial system.

NRB officials expressed concerns over deviations in service standards, governance lapses, and imprudent lending practices within cooperative institutions, signaling potential threats to financial safety.

Looking ahead, the report cautions that ongoing political instability and economic slowdown could exacerbate existing challenges, further jeopardizing financial stability. In response, NRB emphasized ongoing efforts to promote financial inclusion, particularly targeting vulnerable and underserved populations.

Governor Maha Prasad Adhikari underscored the resilience of Nepal’s banking system in the face of these challenges, emphasizing the importance of vigilant and proactive banking regulations to sustain economic growth and financial stability.

The ‘Financial Stability’ Report serves as a pivotal document outlining the current state of Nepal’s financial sector, highlighting both achievements and critical areas necessitating immediate attention from regulatory authorities and stakeholders alike.