Nepal Rastra Bank (NRB) has reissued a call for proposals to conduct a Loan Portfolio Review (LPR) of the country's top 10 commercial banks, in line with its agreement with the International Monetary Fund (IMF). This initiative aims to assess the quality of loans and ensure compliance with regulatory standards.
On Friday, NRB published a public notice inviting international audit firms to submit their proposals by January 6. This follows an earlier request for proposals between mid-March and mid-April, which was unsuccessful as all submissions were rejected. In response, NRB has reopened the bidding process with minor adjustments to the terms and conditions for consulting firms.
Suman Kumar Adhikari, Executive Director of NRB's Asset and Service Management Department, stated that the new bidding process includes slight modifications. Notably, the minimum qualifying score for consultants has been lowered from 70 to 60. The selection criteria now allocate 50% weight to the consultant's qualifications, 40% to experience, and 10% to capacity.
The IMF has stipulated that an LPR of the 10 largest commercial banks is a prerequisite for disbursing the Extended Credit Facility (ECF) tranche. The IMF suspects that non-performing loans (NPLs) may be underreported and is advocating for an international consultant to conduct a thorough assessment of Nepal's banking sector. According to the agreement with the IMF, the review process was initially scheduled to commence by the end of April 2024 and conclude by December, with a reform action plan to be implemented from February 2025 based on the findings.
Adhikari mentioned that the timeline would be extended, acknowledging the IMF's awareness of the delays in selecting consultants. Previously, NRB had shortlisted firms including Deloitte Financial Advisory of the Netherlands, KPMG Assurance and Consulting Services of India, and KPMG Taseer Hadi and Company of Pakistan. Additionally, joint ventures between India's PricewaterhouseCoopers and Nepal's CSC and Company, as well as India's SR Batliboi and Associates LLP and Nepal's BK Agarwal and Company, were considered.
These firms were initially given until July 6 to submit their financial proposals. After receiving no submissions by that date, NRB extended the deadline twice, ultimately to August 5. In the end, only KPMG Assurance and Consulting Services submitted a proposal, which was subsequently rejected for exceeding the budgeted cost estimate.
According to NRB data, as of mid-July of the last fiscal year, the total credit disbursed by 19 commercial banks amounted to NPR 4,569 billion. The LPR will assess NPR 2,896 billion of this credit, focusing on the 10 banks with the highest lending volumes. This review will cover 63% of the total credit issued by commercial banks.
The LPR will evaluate various aspects, including banks' credit policies and procedures, loan quality, collateral valuation, and implementation practices. NRB's proposal specifies that the selected consulting firm should complete the review within five months of signing the agreement.
