Provisioning by commercial banks for bad loans has surged a whopping 64.4 percent in the third quarter of the fiscal year. The provisioning amount soared to Rs 4.11 billion in Q3 from Rs 2.5 billion in Q2. The third quarter financial reports of commercial banks showed a growth in the amount of provisioning except for Nepal Bank Limited and Siddhartha Bank. Commercial banks were forced to increase the amount of provisioning during Q3 due to a rise in bad loans. With realty loan defaults swelling, bankers said non-performing loans (NPL) would increase further forcing them to increase provisioning. The level of loan loss provisioning usually goes up when the amount of bad loans increases. At least 25 percent of the loans should be provisioned if they are not recovered within three months after maturity. If a bank fails to recover loans within six months, then it should provision 50 percent of the loans. The provisioning rate goes up to 100 percent if the loans are not repaid within one year of maturity. Increased lending also leads to higher provisioning as banks are required to make 1 percent provisioning of good loans, according to the directives of Nepal Rastra Bank (NRB). Lending by banks in third quarter has gone up to Rs 514.31 billion from Rs 502.86 billion of second quarter. Ashoke Shumsher Rana, president of Nepal Banker’s Association, attributed the the surge in the amount provisioning to default in realty loans. “During heydays, people had made huge investment in the realty sector,” said Rana. “Now, the sector is experiencing a slowdown and borrowers are struggling to pay back loans.” Other bankers also endorse Rana’s view. “Borrowers are currently struggling to pay interest on their loans because of a slowdown in the economy and a prolonged liquidity crisis,” said Radesh Pant, chief executive officer of Kumari Bank. With stringent central bank regulation, banks are under pressure to lower their lending exposure to the realty sector. According to Rana, banks may have to set aside higher amount for provisioning in the next quarter if the situation remains same. Of the 29 banks seeing a growth in provisioning, Agricultural Development Bank Limited (ADBL) has set aside the highest provisioning of Rs 1.74 billion. Its NPL amounted to 8.65 percent of the total loans. After ADBL, NB Bank has the highest provisioning of Rs 390.59 million, up 659.37 percent from Q2 following a surge in its NPL. NB Bank’s NPL swelled to 19.44 percent in Q3 from 14.39 percent in Q2. Similarly, Nabil Bank witnessed a 360.59 percent surge in its provisioning from Rs 38.85 million in Q2 to Rs 178.94 million in Q3. However, the bank’s provisioning was down compared to the same period in 2009-10. Siddhartha Bank is the only bank to witness a decline in both NPL and loan loss provisioning. Its provisioning fell to Rs 16.89 million in Q3 from Rs 29.02 million in Q2. The average NPL level of commercial banks rose to 2.63 percent at the end of Q3 from 2.43 percent in Q2. Of the 31 banks, 13 banks saw a decline in their NPL level in Q3, while five new banks—Janata, Mega, Commerz and Trust, Civil and Century—had zero NPL level. Top five banks with highest provisioning Banks Amount of provisioning NPL Agricultural Development Bank Rs 1.74 billion 8.65% NB Bank Rs 390.32 million 19.44% Machhapuchchhre Bank Rs 256.77 million 6.93% Sunrise Bank Rs 203.18 million 3.34% Himalayan Bank Rs 181.60 million 3.87%
source: thekathmandupost