Himalayan Bank Basel Fraud: NRB Launches Probe into Regulatory Report Manipulation
29th May 2025, Kathmandu
Nepal Rastra Bank (NRB), Nepal’s central bank, has started an onsite supervision of Himalayan Bank. This move follows reports that the bank submitted manipulated Basel regulatory reports for two years. The reports allegedly concealed the bank’s true accumulated losses. NRB’s Banking Supervision Department is now investigating these discrepancies in detail.
Himalayan Bank Basel Fraud
Investigation Triggered By Expose
NRB’s spokesperson and Executive Director of the Banking Supervision Department, Ramu Paudel, confirmed the ongoing review. “The onsite supervisory team is scrutinizing the Basel reports submitted by Himalayan Bank over the past two years,” he said. The team has orders to examine the reports carefully and conduct necessary investigations.
This probe began after a Business News investigation revealed that Himalayan Bank hid its actual accumulated losses. The bank allegedly manipulated Basel reports to display a healthier capital base than reality. Such acts breach NRB’s regulations and risk the banking sector’s stability.
Challenges Following Civil Bank Merger
Himalayan Bank has struggled since merging with the former Civil Bank. Its non-performing loans (NPLs) have increased steadily. The bank also faces difficulties in selling its non-banking assets. Due to rising bad loans, it must allocate more funds for regulatory capital buffers. This situation led to a distributable loss of NPR 744 crore.
The bank’s asset quality worsened, pushing losses from bad loans higher. Poor NPL management has hurt profitability. As a result, the bank recorded a net profit of just NPR 50 million in the third quarter of this fiscal year.
Capital Fund Misrepresentation
The growing distributable loss has eroded Himalayan Bank’s capital funds. However, the bank reportedly understated its accumulated losses in Basel reports. This underreporting misrepresented the bank’s capital adequacy. It appears the bank aimed to avoid regulatory penalties or capital charges that occur when the primary capital adequacy ratio falls below the required level.
Although Himalayan Bank showed a small profit in the third quarter, the true financial picture is grim. When factoring in regulatory capital adjustments and past accumulated losses, the bank actually faces a distributable loss of NPR 736 crore.
In the bank’s financial statements, this loss appears as a reduction in shareholders’ equity through share investments. Yet, the Basel report paints a different picture. It shows a profit and loss account with a negative balance of NPR 57.22 million. Meanwhile, accumulated losses are reported at NPR 592 crore, enabling the bank to maintain a primary capital adequacy ratio of 8%.
If the Basel report had included the full NPR 736 crore accumulated loss, the primary capital fund would have shrunk to NPR 2.363 billion. Instead, Himalayan Bank reported a capital fund of NPR 2.45 billion by underreporting losses. The actual capital adequacy ratio, based on true losses, would be 7.71%. This figure is below the minimum regulatory requirement.
Repeated Pattern Of Misreporting
This misreporting is not new. Himalayan Bank submitted similarly inaccurate Basel reports during last fiscal year’s audit. At fiscal year-end, the accumulated loss stood at NPR 744 crore. However, the Basel report recorded only NPR 324 crore. The profit and loss account showed a negative balance of NPR 267 million. The primary capital adequacy ratio was stated as 8.51%, while proper adjustment would have brought it down to 7.98%.
Using the real accumulated losses, the primary capital fund should have been capped at NPR 2.347 billion instead of NPR 2.5 billion. This would cause the capital adequacy ratio to fall below 8%. When considering the NPR 744 crore accumulated loss, the minimum capital adequacy ratio should have been 11.10%.
Himalayan Bank has repeated this misreporting pattern not only in the last fiscal year but also in the first and second quarters of the current fiscal year. The bank also submitted inaccurate Basel reports in all four quarters of the previous fiscal year.
No Regulatory Action Yet
Despite these repeated errors, NRB has not yet taken regulatory action against Himalayan Bank. This lack of response raises serious questions about corporate governance and regulatory enforcement in Nepal’s banking sector.
Concerns Over Governance And Transparency
The ongoing issue highlights problems in transparency and compliance at one of Nepal’s major commercial banks. Himalayan Bank’s actions could undermine depositor confidence and the banking system’s stability.
NRB’s onsite supervision and thorough investigation might lead to corrective steps. These could include penalties, stricter monitoring, or demands for recapitalization. The goal is to protect depositors and maintain trust in the financial sector.
For more: Himalayan Bank Basel Fraud
