Bangladesh-Based Firm to Conduct Loan Portfolio Review of 10 Major Nepali Commercial Banks
1st September 2025, Kathmandu
By hiring the Bangladesh-based auditing firm Howladar Yunus & Co. Chartered Accountants to conduct a comprehensive Loan Portfolio Review (LPR) of the country’s 10 largest commercial banks, Nepal Rastra Bank (NRB) has taken a significant step toward strengthening the nation’s financial system.
Loan Portfolio Review
This proactive measure, with an allocated budget of approximately NPR 6.25 million, is designed to provide a transparent and unbiased assessment of loan quality, address growing concerns about non-performing assets, and reinforce regulatory supervision.
The Rationale and Scope of the Review
The decision to initiate this comprehensive review comes at a crucial time for Nepal’s financial sector. Over the past few years, the banking industry has faced considerable pressure from a slowdown in economic activity, which has led to a rise in non-performing assets (NPAs) and sluggish loan recovery. A healthy loan portfolio is the backbone of any commercial bank’s stability and, by extension, the entire financial system. The LPR is an essential tool for assessing this health.
The review’s scope is meticulously planned to cover several critical aspects of banking operations:
Loan Classification: An in-depth assessment will be conducted to differentiate between performing and non-performing loans, ensuring that banks are accurately classifying their assets.
Credit Risk Evaluation: The firm will identify potential risks inherent in the loan distribution process and analyze the factors that could hinder timely repayment.
Asset Quality: This involves an analysis of the true quality of the banks’ assets, going beyond surface-level figures to reveal any underlying vulnerabilities.
Compliance Monitoring: The review will also ensure that the banks are fully compliant with all the regulatory standards on loan management set by the central bank.
By focusing on these areas, the NRB will gain valuable insights into the strengths and weaknesses of the loan books of the country’s major commercial banks. This information is vital for policymakers to implement more robust risk management practices and to safeguard the stability of the financial sector.
The Strategic Choice of an International Firm
NRB’s decision to award this contract to a foreign firm, Howladar Yunus & Co., is a deliberate and strategic move. It highlights the regulator’s intent to secure an independent and unbiased assessment of loan quality. In an interconnected financial system, the credibility of such a review is paramount. An international firm like Howladar Yunus & Co., which is a correspondent firm of the global network Grant Thornton International, brings a wealth of cross-border experience and a professional evaluation framework that aligns with global auditing standards.
This cross-border collaboration is not just about a single audit; it signals the central bank’s commitment to adopting global best practices in financial regulation and governance. By bringing in international expertise, NRB can benchmark Nepal’s banking sector against international models and strengthen its own capacity to supervise and monitor financial institutions effectively. This move is crucial for enhancing the transparency and accountability of the banking industry, which, in turn, helps to restore public and investor confidence in the financial system.
Implications for Nepal’s Commercial Banks
The findings of the Loan Portfolio Review will have direct and significant implications for the 10 largest commercial banks in Nepal. These banks collectively hold a major share of the country’s total loan portfolio, making their health a direct reflection of the overall financial stability. Once the review is complete, the findings could lead to several key changes:
Loan Reclassification: If the review identifies discrepancies, certain loans that were previously classified as performing might be reclassified as non-performing.
Increased Provisioning: A reclassification of loans as NPAs would require banks to increase their loan loss provisioning. This may temporarily affect their profitability, but it is a necessary step to ensure that their financial statements accurately reflect their asset health.
Strengthened Risk Management: The review’s recommendations will push banks to re-evaluate and strengthen their credit appraisal and risk management processes, leading to more disciplined and responsible lending in the future.
A More Accurate Financial Picture: Ultimately, the review will provide a clearer and more accurate picture of the overall health of the banking sector, which is essential for informed decision-making by regulators, investors, and the public.
While this exercise may initially put pressure on the banks to comply and adjust their reporting, the long-term benefits of improved loan quality and enhanced financial stability are undeniable.
A Cornerstone of NRB’s Broader Strategy
The Loan Portfolio Review is a cornerstone of Nepal Rastra Bank’s broader strategic vision for the financial sector. This initiative is designed to achieve several long-term goals:
Promote Responsible Lending: By scrutinizing loan portfolios, NRB is sending a clear message to all financial institutions about the importance of sound lending practices.
Mitigate Bad Loan Risks: The review is a proactive measure to identify and address the risks associated with bad loans before they escalate into systemic problems.
Enhance Credit Discipline: The exercise is expected to foster greater credit discipline across the entire financial system, leading to more sustainable growth.
Ensure Capital Adequacy: By providing a clear picture of asset quality, the review helps to ensure that banks remain well-capitalized and capable of withstanding potential economic shocks.
This rigorous oversight is particularly important given the recent slowdown in credit growth and an increase in loan defaults in specific sectors, such as real estate, construction, and small businesses. The LPR is a tool to address these concerns head-on and prevent potential systemic risks.
Conclusion
By contracting Howladar Yunus & Co. Chartered Accountants to conduct a comprehensive review of its 10 largest commercial banks, Nepal Rastra Bank has taken a crucial and commendable step toward ensuring the resilience and transparency of the nation’s financial system. With an estimated cost of NPR 6.25 million, the review will provide valuable insights into the real condition of bank assets and loan quality. Its findings are expected to have a profound impact on regulatory decisions, influence future banking practices, and ultimately strengthen investor and public confidence in Nepal’s financial sector. This initiative reflects a firm commitment to robust financial governance and represents an essential pillar for safeguarding long-term economic stability.
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