24th May 2025, Kathmandu
Nepal Rastra Bank (NRB) has chosen a Bangladeshi auditing company to conduct an asset quality review of Nepal’s largest commercial banks. This decision marks a key step in Nepal’s financial reform process, tied to the country’s agreement with the International Monetary Fund (IMF).
Nepal Commercial Bank Asset Quality Review
The Dhaka-based firm, Howladar Yunus & Co., will carry out the Loan Portfolio Review (LPR) for the top 10 commercial banks in Nepal. NRB announced the selection following a competitive bidding process involving firms from neighboring countries.
Why the Review Is Important
Nepal signed an Extended Credit Facility (ECF) agreement with the IMF in December 2021 (Poush 2078). This agreement brought concessional funding of nearly USD 396 million to Nepal. However, the IMF required Nepal to reform its financial sector as a condition for receiving the funds.
One major requirement was a thorough examination of the quality of assets held by Nepal’s leading banks. Specifically, the IMF wanted an independent assessment of the banks’ loan portfolios. The Loan Portfolio Review aims to identify risks in bank loans and ensure banks maintain adequate provisions against potential losses.
Selection of the Bangladeshi Firm
NRB had initially shortlisted six firms for the asset quality review. The contenders included:
Deloitte Partners (Sri Lanka)
Howladar Yunus & Co. (Bangladesh)
KPMG Assurance and Consulting Services (India)
JV Mehra–JKSS–SSBDI (India-Nepal joint venture)
MSKA & Associates (India)
JV SRBA and BK Agarwal & Co. (India-Nepal joint venture)
After evaluating proposals, NRB picked Howladar Yunus & Co. for its expertise and competitive offer. This company will now conduct a detailed assessment of the banks’ loan portfolios.
Delays and Procurement Challenges
NRB started the process last fiscal year but faced delays. Procurement rules and regulations slowed the finalization of the contract. The process had to be paused temporarily before resuming this year.
Despite the hurdles, NRB remained committed to completing the review. The Bank sees this as a vital measure to boost the banking sector’s transparency and resilience.
IMF Loan Disbursement Timeline
Under the ECF, Nepal was to receive the loan in seven installments over 38 months. The first installment of USD 110 million was disbursed on January 12, 2022 (Poush 28, 2078).
However, the second tranche faced a 16-month delay. It was released only in April 2023. Initially, the third and fourth installments were scheduled for December 2022 and May 2023. But the third installment was approved only in December 2023.
The fourth installment, amounting to NPR 5.51 billion (around USD 41.3 million), arrived in July 2024. Soon after, the fifth installment of NPR 5.81 billion (USD 41.8 million) was disbursed in March 2025.
Economic Background and Reform Commitments
Nepal’s foreign currency reserves dropped sharply in 2022. This caused a balance of payments crisis. To address this, Nepal sought the IMF’s concessional loan facility.
Before the loan approval, Finance Minister Janardan Sharma and NRB Governor Maha Prasad Adhikari sent a letter to IMF Managing Director Kristalina Georgieva. They reaffirmed Nepal’s commitment to an open-market economy and macroeconomic reforms.
The IMF approved the loan based on these commitments. The ECF loan equals about 180% of Nepal’s Special Drawing Rights (SDR) quota with the IMF. It supports Nepal’s budget and economic recovery efforts.
The Importance of Loan Portfolio Review
The Loan Portfolio Review will analyze each bank’s loan book. This means checking how loans are classified, the level of non-performing loans (NPLs), and the adequacy of loan loss provisions.
By reviewing these elements, the audit aims to uncover hidden risks in the banking system. It also helps banks improve risk management practices.
The review report will guide the NRB and banks in making better decisions. This can enhance the stability of Nepal’s banking sector.
Implications for Nepal’s Banking Sector
The selection of an international auditing firm shows Nepal’s growing focus on financial sector transparency. It also aligns with international best practices.
The review is expected to boost confidence among investors and stakeholders. By identifying weak areas, banks can strengthen their operations.
NRB’s move also signals Nepal’s dedication to its reform agenda under the IMF program. This reassures international lenders and development partners.
Previous Steps and Future Outlook
NRB had taken earlier steps to shortlist auditing firms. Yet, the final selection was delayed due to internal procedural issues. With Howladar Yunus & Co. now on board, the review process will accelerate.
Moving forward, NRB plans to monitor the banks’ responses to the audit findings closely. The central bank may require corrective actions based on the review results.
In addition, the review complements broader financial sector reforms. These reforms include improved supervision, enhanced regulatory frameworks, and strengthened risk management.
Conclusion
Nepal’s choice of a Bangladeshi audit firm for the asset quality review of its top banks marks a critical milestone. This review is a crucial condition of the IMF-backed Extended Credit Facility.
With foreign currency reserves under pressure and a fragile balance of payments, Nepal must implement financial reforms swiftly. The loan portfolio review will provide a clearer picture of the health of Nepal’s banking sector.
Ultimately, the audit aims to enhance transparency, reduce risks, and build confidence in the financial system. Nepal’s commitment to these reforms will determine its economic stability and future growth.
For more: Nepal Commercial Bank Asset Quality Review