The government has pledged to the International Monetary Fund (IMF) to complete a loan portfolio review of Nepal’s 10 large commercial banks by the end of 2025.
A joint letter by Deputy Prime Minister and Finance Minister Bishnu Prasad Poudel and Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari, made public by the IMF, states that the review will be completed by December 2025. The IMF has expressed concerns about the quality of loans reported by Nepal’s banks and financial institutions and had made the review a condition for approving the Extended Credit Facility (ECF).
As per the commitment, the loan portfolio review is set to begin by May 2025, with an international auditor assessing compliance with loan classification, provisioning, and regulations. An earlier attempt to appoint an auditor was unsuccessful. NRB had invited bids in March/April 2024, but after receiving only one financial proposal, which exceeded the central bank’s estimated budget, the process was canceled. Due to this, the IMF has warned that NRB is likely to miss its original deadlines for completing the review. Had the initial bid not been scrapped, the process would have started in August 2024.
In their joint letter, the Finance Minister and NRB Governor also committed to preparing a roadmap by December 2025 to address any problems identified in the review. Banks found to be undercapitalized will be required to submit a capital plan with a specific deadline, based on the roadmap.
NRB had initially shortlisted five proposals in the first bid, but only KPMG Assurance and Consulting Services submitted a financial proposal, which was above the estimated budget, leading to the cancellation. The central bank then relaunched the bidding process in December 2024, receiving six proposals for preliminary selection.
Among the shortlisted proposals in the second bid include Mehra Goyal and Company and JKSS and Associates (India), in partnership with Nepali consulting firm Subedi and Associates; SR Batliboi and Associates, affiliated with Nepal's BK Agrawal and Company; Deloitte Partners (Sri Lanka); Hauladar Yunus and Company (Bangladesh); KPMG Assurance and Consulting Services (India); and MSKA and Associates (India).
To widen the selection pool, NRB lowered the qualification threshold for consultants from 70 marks to 60, allocating 50% of the evaluation weight to consultant qualifications, 40% to experience, and 10% to capability.
The review will assess banks’ credit policies, loan quality, collateral evaluation, and regulatory compliance. According to NRB, consulting firms must complete the review within five months of signing the contract.
NRB data shows that non-performing loans (NPLs) are rising. As of mid-February 2025, the overall NPL ratio for banks and financial institutions stands at 4.92%. Among financial sectors, the NPLs of commercial banks stand at 4.73%, development banks at 5.11% and finance companies at 12.85%.
With the increasing NPL ratio, the upcoming loan portfolio review is expected to provide insights into the financial health of major banks and guide necessary policy interventions.
