The sharp accumulation of real estate and fixed collateral on bank balance sheets highlights the growing severity of non-performing loans and poses significant challenges to overall financial stability, liquidity flow, and dividend capacity.
Data from Nepal Rastra Bank (NRB) shows total non-banking assets of commercial banks, development banks, and finance companies rising from Rs 50.55 billion at the end of the fiscal year 2081/82 to Rs 57.04 billion by the end of 2082/83. Over the course of a single year, financial institutions absorbed an additional Rs 6.49 billion in unrecovered collateral. Class 'A' commercial banks held the vast majority of these assets, increasing their total from Rs 42.77 billion to Rs 48.08 billion. During the same period, Class 'B' development banks saw non-banking assets expand from Rs 4.68 billion to Rs 5.64 billion, while Class 'C' finance companies saw an increase from Rs 3.09 billion to Rs 3.32 billion.
Under current regulatory frameworks, banks are required to assume ownership of mortgaged collateral when borrowers default and repeat public auction notices fail to attract buyers. A sluggish real estate market and low market demand have left institutions repeatedly holding unsold property, diverting their focus away from core financial intermediation toward long-term asset management.
To address the bottleneck, Nepal Rastra Bank and the government are preparing regulatory shifts that go beyond standard auction mechanisms. Authorities are prioritizing the establishment of a dedicated Asset Management Company (AMC) to purchase non-performing assets directly from financial balance sheets at evaluated prices. The move aims to relieve institutions of collateral management burdens so they can redirect capital toward productive lending. Concurrently, the central bank is adjusting monetary guidelines to grant institutions greater flexibility in restructuring distressed loans through mutual agreements with borrowers.
