BFI’s Non-Performing Loans Surge to 5.24 Percent, Non-Banking Assets Escalate

Kathmandu – Nepal’s banking sector is grappling with a sharp increase in non-performing loans (NPL), with the ratio climbing to 5.24 percent by mid-May 2025—up from 3.98 percent during the same period last year. Data published by Nepal Rastra Bank (NRB) show the total volume of NPLs has ballooned to Rs 289.56 billion, reflecting a year-on-year rise of Rs 95.80 billion.

The central bank attributes this spike to borrowers’ declining ability to repay loans and interest amid ongoing economic challenges. To prevent further strain on the financial system, the NRB earlier raised the permissible NPL ceiling from 5 percent to 8 percent. This policy shift, introduced in March, was intended to grant banks more flexibility as they confront rising default risks.

Alongside the NPL hike, the volume of non-banking assets (NBAs)—properties taken over by banks after borrowers defaulted has risen by 63.45 percent within the past year. NRB figures show that NBAs reached Rs 45.11 billion by mid-May 2025, up from Rs 27.6 billion a year earlier.

Commercial banks alone recorded a 62.08 percent jump in NBAs, while development banks and finance companies saw even steeper increases—55.56 percent and 102.45 percent, respectively.

These properties, held as collateral, are typically auctioned by banks to recover losses. However, prolonged holding of such assets is proving to be a burden on liquidity and balance sheets.

The central bank’s recent Annual Bank Supervision Report flagged the surge in NPLs and NBAs as critical challenges. The report warned that if left unchecked, the situation could compromise the capital adequacy of banks and financial institutions (BFIs), weakening their ability to withstand economic shocks.