Commercial banks reduce Non-Performing Assets (NPA)

The Non-Perfoming Assets (NPA) of commercial banks have come down. NPA is one of the key indicators that gaue the financial strength of any bank or financial institution.
"By the end of the fiscal year 2006-07, the NPA of A-class commercial banks was 10.3 per cent, which came down to 6.3 per cent by the end of the fiscal year 2007-08," said the Monetary Policy 2009-10.
The NPA decreased to 4.9 per cent by April 13, 2009, according to the unaudited report of the commercial banks.
Of the total 25 commercial banks then, except three government and semi-government commercial banks -- Nepal Bank Ltd (NBL), Rastriya Banijya Bank (RBB) and Agriculture Development Bank Ltd (ADBL) -- 22 commercial banks' NPA is at 2.4 per cent, the eighth Monetary Policy said. NBL and RBB -- by the end of the fiscal year 2007-08 -- had 12.4 per cent and 21.7 per cent NPA respectively. They further reduced their NPA to 8.6 per cent and 18 per cent respectively by April 13, 2009. They have succeeded in reducing the NPA under the Financial Sector Reform Programme which had categorically said them to reduce the NPA.
However, the number of commercial banks, development banks and finance companies has also increased. Currently, there are 26 commercial banks, 63 development banks, 78 finance companies, 12 micro-finance companies -- making it a total of 173 banks and financial companies.
By April 13, 2009 -- the end of fiscal year 2008-09 -- the total number of branches of commercial banks also increased to 681 from 555. Within six months, 126 new branches of commercial banks were added, according to the policy that has stated that regionwise the branches of commercial banks stood at 127 in Eastern Development Region, 337 in Central Development Region, 135 in Western Development Region, 51 in Mid-Western Development Region and 31 in Far-Western Development Region.
Though commercial banks claim that they are moving towards rural areas, their reach through branches is less in the hilly region. According to the report, the populace in Western Development Region has little access to commercial banks. "The urban-centric banks should go to rural areas," NRB governor Bijaya Nath Bhattarai said during his reinstating ceremony the other day.

What is NPA
KATHMANDU: Non-Performing Assets (NPA) is a classification used by financial institutions that refer to loans in jeopardy of default. Once the borrower has failed to make the interest or principal payments for 90 days the loan is considered NPA and also known as Non-Performing Loan (NPL). Non-performing assets are problematic for financial institutions since these institutions depend on interest payments for income. Troublesome pressure from the economy can lead to a sharp increase in NPA and often results in massive write-downs.

The NPA level
2007 July 16 -- 10.3 per cent
2008 July 16 -- 6.3 per cent
2009 April 13 -- 4.9 per cent (unaudited report)