Non-Banking Assets of Nepali Banks Surpass Rs 50 Billion Amid Slow Loan Recovery

Non-banking assets held by Nepal’s banks and financial institutions have climbed past Rs 50 billion as the sluggish economy has stalled loan recovery and property auctions. According to Nepal Rastra Bank (NRB), these assets reached Rs 50.56 billion by mid-July of the current fiscal year 2025/26, up sharply from Rs 35.50 billion in fiscal year 2023/24.

Banks are required to take collateral into their own names when borrowers default and auctions fail, classifying it as non-banking assets. Most of these holdings are land and real estate, which have been difficult to sell as property transactions have slumped and cooperative-sector troubles have deepened.

Under existing rules, banks must publish 35-day auction notices in national newspapers, then 21 days, and finally 7 days before they can proceed if debtors remain unreachable. Even after meeting these requirements, many auctions have stalled, prompting banks to attempt online sales.

The surge in unsold collateral has renewed calls for a dedicated asset management company or “bad bank.” Although the High-Level Economic Reform Recommendation Commission, then chaired by Rameshore Prasad Khanal, proposed establishing such an institution, the necessary legal framework is still pending. Khanal, now the incumbent finance minister, is tasked with implementing the very recommendation he once made. NRB has already submitted a draft law to the Finance Ministry to enable creation of an asset management company.

Nepal’s Land Act of 1964 requires banks, financial institutions, and cooperatives to dispose of land acquired as non-banking assets within three years or obtain government approval for an extension. With non-banking holdings continuing to rise, banks have been lobbying to remove or relax this three-year limit.