Commercial banks Q2 NPA almost doubles-slowdown in realty and housing sector can be accountable

The Non-Performing Assets (NPA) of commercial banks seem to have almost doubled in the second quarter of the current fiscal year.According to the unaudited financial figures of the second quarter of the current fiscal year, the average ratio of NPA to the performing loans in the second quarter of the current fiscal year is at 0.88 per cent which was 0.48 per cent in the corresponding quarter of the previous fiscal year.The slowdown in realty and housing sector can be accounted for the surge in NPA of the commercial banks this season.

The bankers have been suggesting the central bank Nepal Rastra Bank (NRB) to relax the ceiling on housing and real estate lending, citing the slowdown in realty to have affected the performance of banks as most of the commercial banks’ loan portfolio is dominated by these sectors.

Among the unaudited financial statements released by the twelve commercial banks Bank of Asia Nepal (BoAN), Kumari Bank Ltd (KBL), Kist Bank Ltd (KIST), Siddhartha Bank Ltd (SBL), Global Bank Ltd (GBL), Laxmi Bank Ltd (LBL), Citizens International Bank Ltd (CZBL) and Prime Bank Ltd (PBL) are the commercial banks expected to report an increased NPA for the second quarter in comparison to that of corresponding quarter in the previous fiscal year.

Standard Chartered Bank (SCBL), Nepal SBI Bank (SBI) and DCBL Bank Ltd (DCBL) are expected to report a drop in NPA in the review.

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 are the interest payments by borrowers.

source: Himalayan News Service(2011),"Commercial banks' Q2 NPA almost doubles ", The Himalayan Times, 12 feb 2011

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