Increase in number of loan defaulters in Nepal

KATHMANDU: The number of blacklisted names for defaulting on loans has grown with the increase in the amount of loans floated by the commercial banks.

The Credit Information Bureau (CIB) has blacklisted 210 firms and individuals for defaulting on loan repayments in the first four months of the current fiscal year. During the corresponding period a year ago, there were 175 such blacklisted firms and individuals.

“The expansion in lending of the banks has been substantial in the past couple of years which has also

increased the number of defaulters,” pointed out vice president of Nepal Bankers’ Association Upendra Poudyal.

According to the recently published first quarter financials of commercial banks, the amount of loans floated by banks has increased by 22 per cent in the past one year. The 30 banks have floated loans worth

Rs 739 billion by mid-October 2013. These banks had lent Rs 606 billion till mid-October 2012.

Nepal Rastra Bank’s data also shows that in the past 10 months, the number of credit accounts at banks has increased by 12 per cent. There were 532,135 loan accounts with commercial banks in mid-November 2012, which has gone up to 595,500 accounts by mid-August 2013.

“In the last three years, the slowdown in the real estate sector has also increased the number of defaults,” added Poudyal. In the past two years, CIB has blacklisted 25 housing developers and construction companies.

In fiscal year 2012-13, CIB blacklisted 660 firms and individuals on the recommendation of financial institutions for failing to repay loans. The content of the blacklist more than doubled in the last fiscal year in

comparison to fiscal year 2011-12, when CIB blacklisted 305 defaulters.

Though the amount of non-performing assets in the banks’ balance sheets seem to be declining, they are provisioning more for possible loan loss. The first quarter financials of the banks show that the non-performing loans (NPL) of 30 banks have reached 2.62 per cent of total loans on average. Such NPL stood at 2.9 per cent a year ago.

Despite the decline in the percentage of bad loans, the amount of provisioning undertaken to cushion against possible loan loss increased in the first quarter. During the period, banks set aside Rs 2.6 billion for the purpose which stood at Rs 2.3 billion a year ago.

“In the past years, banks might have been a bit less cautious in terms of lending which has resulted in the increased number of defaults,” pointed out Poudyal.

In addition, from November 2012, the central bank directed financial institutions to blacklist those who had defaulted on loans worth Rs one million or more from the earlier Rs 2.5 million

ceiling. The downsizing of the eligibility has pushed more individuals and firms to be blacklisted.

There are more individual names in the blacklist than institutions — almost two-thirds are individuals. Banks request CIB to blacklist any person or a firm that fails to repay loans on time. Blacklisting of defaulters most of the time helps banks recover the loans sooner.

Being blacklisted makes the borrower — any natural person or firm — ineligible for acquiring or rescheduling any new loan from any financial institution — not even a credit card.

Moreover, such blacklisted people also become ineligible to hold the post of a director of any publicly listed company or even contest in local or general elections.

source: The Himalayan Times, 18/11/2013

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Insider Lending Destroying the Nepalese Banking Sector

KATHMANDU, NEPAL

Officials of seven development banks faced the Nepal Rastra Bank’s (NRB) action for insider lending. These seven are among the 12 development banks that faced the central bank action in the last fiscal year for governance-related issues.

Senior Officials of Narayani Development Bank, Kabeli Development Bank, Pathibhara Development Bank, Infrastructure Development Bank, Uddyam Development Bank, Excel Development Bank and Khadbari Development Bank were taken action after finding their involvement in insider lending, according to the NRB’s Development Bank Supervision Report.

Also, a majority of the 11 finance companies that faced the NRB action last year were found involved in insider lending against the banking norms, according to the NRB. Some of the finance companies include Crystal Finance, Capital Merchant and Finance, Kuber Finance, General Finance, Baibhav Finance and Progressive Finance.

The report also showed that 11 financial institutions that were declared crisis-ridden were the victims of insider lending.

This reflects how insider lending is taking its toll on the banking sector . In the latest incident at Siddhartha Development Bank, insider lending led to the arrest of former Kist Bank Managing Director Kamal Gyawali’s wife Gauri Khanal, while Gyawali himself had to resign from his post.

According to the Central Investigation Bureau (CIB) of Nepal Police, a loan worth Rs 130 million provided by Siddhartha to Jamko Publication was deposited in Khanal’s account in Prime Bank on the same day.
Jamko’s proprietor Jishor Dhakal also took an additional Rs 120 million loan from Kist Bank, which Dhakal has claimed to have gone to Gyawali, according to NRB officials.

The Bank and Financial Institution Act (BAFIA) has barred directors, chief executive officers and promoters having more than 1 percent stake in any bank or financial institution (FI) from taking loans from their own institution.

However, the practice of taking such loans by creating fake loans in collusion with directors of other financial institutions and from the inter-bank deposits has been prevalent.

In some cases, even the central bank is unknown about extent of the trouble in FIs and continues to put its deposits in them. The NRB had deposits in Nepal Share Market and Finance (NSMF) when it landed in trouble.

The NSMF, which was in the process of upgrading itself into a commercial bank, increased its paid-up capital to Rs 2 billion from Rs 400 million within a short period. “Surprised by the sudden increment in the capital, we sent our team to find out how it was achieved. But they didn’t cooperate with our team,” said a senior NRB official. “Then, we demanded the details of loans, but we were provided with fake loan files created by using photocopies of citizenship certificates of depositors.”

As much as 98 percent the capital added was created from deposits just to monopolise the rights shares by Yogendra Shrestha, immediate executive chairman of NSMF. Later, the company’s due diligence audit identified that Rs 1.72 billion was embezzled by creating 96 fake loanees.

Similar was the case in Capital Merchant and Finance, which was also gearing up to increase its capital to become a commercial bank.

NRB Spokesperson Bhaskar Mani Gyawali said it is natural that the central bank knows about insider lending in FIs only after incidents take place. He, however, said increased penetration of BFIs amid limited supervisory capacity of the central bank also aided insider lending.

According to Gyawali, as BFI directors wanted to invest in the real estate sector when it was booming, a majority of them took loans from their own financial institutions by creating fake loanees or by other means.
Bank directors and chief executives used different methods to get loans from their own financial institutions. For example, Laxmi Bahadur Shrestha, former director of Nepal Bangladesh Bank received loans from NCC Bank by creating a fake loanee in the name of Dipak Nar Singh Shrestha which remained unpaid for long, according to a banker in knowledge of the matter.

“He also took many loans from Nepal Sri Lanka Merchant Bank (NSMB) indirectly by first putting NSMB’s deposits in other financial institutions and taking loans against those deposits,” said the NRB official.

In a similar case at Siddhartha Development Bank, one of the former directors received Rs 100 million loans from Prudential Finance by putting Siddhartha’s deposit in the finance company, according to an NRB official.

In order to control insider lending, the central bank has adopted a policy that requires CEOs and directors to submit their loan details to their banks and show the details to central bank supervisors. Earlier, it was provisioned that such loans should be disclosed in their audit reports. “We changed the policy later because disclosing personal information would not be practical as banks themselves vow not to make public about their client’s information,” said NRB’s Gnawali.

Source:ekantipur, 18th June 2013
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NRB relaxes Know Your Customer rules

The Nepal Rastra Bank has allowed banks and financial institutions (BFIs) to determine themselves the requirements that customers have to fulfil while opening bank accounts with deposits less than Rs 500,000.

Moreover, people can also open bank accounts by producing photocopies of passport, permanent account number (PAN) cards, identity cards of government, public and private offices. In case of teachers, professors and other staff of government schools, colleges and universities, they can open accounts by producing photocopies of their identity cards provided by the institutions they are working, states new “Know Your Customer” directive issued on Friday.

The revised directive has also removed the earlier provision that required individuals to produce citizenship number of ancestors going back to three generations, limiting the requirement to disclosure of personal information and names and surname of three generations.

“The new KYC directive has surprised me because the NRB has given us more than what we wanted,” said Ashoke Rana, chief executive officer of Himalayan Bank Limited. “This has enabled all to open accounts. This will help increase the number of bank accounts.”

The central bank’s move came after complains from BFIs that the previous provisions caused sharp decline in new account opening and even old depositors started closing their accounts.

“The move was taken to ease account opening and is based on international practices,” said NRB Spokesperson Bhaskarmni Gnawali. “We simplified the provision after consultations with the Financial Information Unit (FIU), which looks after money laundering issues.”

According to the NRB directive, this provision is only applicable to those willing to open new accounts. Existing accountholders will not have to produce new documents. Gnawali, however, said the provisions for foreigners have not been revised.

President of Nepal Bankers’ Association Rajan Singh Bhandari welcomed the NRB move, saying it would encourage account opening at a time when existing accountholders were also seeking to close their accounts due the lengthy re-verification process. “Letting people open bank accounts by producing documents other than citizenship certificates is a welcome move. Such practices are prevalent in the US and Europe too,” he said.

Source: ekantipur.com, 6th April 2013

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