Kathmandu: The banks survived last fiscal year’s liquidity tight situation and real estate and crusher industries — major borrowers — inability to repay as their Non Performing Assets (NPA) level — supposed to go up — has not gone over the board.

The NPA of the commercial banks have gone up by almost 20 per cent in the last fiscal year as the average ratio of NPA to the total loans in the fourth quarter of last fiscal year stood at 2.36 per cent from 1.89 per cent in the same quarter of a fiscal year ago, according to the unaudited financial reports of the commercial banks in the fourth quarter of last fiscal year. The average NPA of the private commercial banks without counting that of public commercial banks has also risen from 1.18 per cent in the fiscal year 2009-10 to 1.7 per cent in the last fiscal year.

The group NPA average had risen last year due to large amount of toxic loans floated by the three public commercial banks in the past. Despite going through almost a decade long restructuring programme these banks still need to get rid of their bad loans. Agriculture Development Bank saw its NPA reducing from 10.97 per cent to 8.64 per cent, whereas NPA of Rastriya Banijya Bank and Nepal Bank has gone up.

Among the private commercial banks Nepal Bangladesh Bank has continued its struggles with NPA last fiscal year too. The bank’s NPA to total loans increased to 18.2 per cent in the last fiscal year from 6.42 per cent in the fiscal year 2009-10. NPAs are one of the key indicators that gauge the financial strength of any bank or financial institution. NPAs for banks are nothing but loans gone sour. It is a loan that can not be recovered from the customer within stipulated time, especially those exceeding 90 days of the predetermined period. The NPA does not yield any income to the banks in the form of principal and interest payments. NPAs eat into the income of the financial institutions as the primary source of income of financial institutions is the interest payments made by the borrowers. Moreover, the banks need to provision certain portion of their profit to balance the NPAs so that higher NPAs translate into lower profit.

The rising NPA has also increased the loan loss provision amount of the commercial banks. The banks had kept aside Rs 5.39 billion last fiscal year to provision against loan loss while in a fiscal year ago the banks had kept aside Rs 5.3 billion for the purpose.

source: The Himalayan Times