The government has unveiled plans to establish an asset management company aimed at addressing the growing burden of non-performing assets (NPAs) and bad loans in the banking sector.

President Ramchandra Paudel announced the initiative while presenting the government’s policies and programmes for the upcoming fiscal year.

Read: Banks Grapple with Non-Banking Assets

The accumulation of non-banking assets (NBAs) has emerged as a pressing concern for banks and financial institutions amid slowdown in the economy. 

Bankers say the root problem lies in the regulatory requirement that financial institutions must auction off collateralized assets when borrowers default. However, sluggish market conditions have made it increasingly difficult for banks to dispose of these properties in a timely manner.

Compounding the issue, banks are mandated to allocate 100% provisioning against the value of such assets until they are sold—further straining their financial positions. As a result, NBAs continue to pile up on balance sheets, driven largely by a stagnant real estate market and rising non-performing loans.

The proposed asset management company is expected to help banks offload these illiquid assets, improve balance sheet health, and restore lending capacity in a challenging economic environment.