Kathmandu. The banks and financial institutions have not carried out the necessary monitoring and evaluation after the disbursement of loans. During the recent inspections, the banks found weaknesses such as not evaluating the annual evaluation of the borrowers, not monitoring the loans given to the concerned parties and not properly classifying the loans in the auction process.
According to the Nepal Rastra Bank, there is a weakness in the loan evaluation and classification system.TAG_OPEN_p_8 This has raised questions about the risk management of the banking sector. The regulator said that although banks are required to continuously monitor the investment of loans, many institutions have not implemented this provision effectively.
The central bank has also said that various irregularities have been found in the loan disbursement process.TAG_OPEN_p_7 There is a tendency to approve loans beyond the borrower’s qualified loan utilization limit, provide loans to institutions with negative net tangible assets and extend loans without adequate collateral.
Similarly, banks have also accepted margin loans with more than 5 percent ownership of financial institutions, which is considered sensitive from the point of view of risk management.TAG_OPEN_p_6
The central bank has directed banks and financial institutions (BFIs) to make the loan evaluation, classification and monitoring process more effective, saying such vulnerabilities could increase risk in the banking system.
