Non-Banking Assets of Banks in Nepal Surpass Rs 50 Billion

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.

Due to the Corona pandemic, economic recession, and the slow pace of the real estate market, as borrowers are unable to repay loans on time, banks have increased the process of auctioning collateral or recovering it in their own names. The government has amended the Land Act to allow banks to keep land in their names for three years, which has eased the recovery process somewhat.

However, in the meantime, the bank's bad loan ratio has decreased to 4.62 percent, contrary to expectations, which is higher than 4.37 percent last year. Experts have interpreted this as a sign that economic activity has slowed and debt collection has become challenging.