Priority lending is dragging down Nepali banks into huge bad debt
Summary
Nepali banks face rising non-performing loans primarily due to mandatory priority lending in sectors like agriculture and MSMEs, amid economic slowdown and weak demand, leading to increased financial sector stress.
Key Points
- Mandatory priority lending policies have led to high non-performing loans in Nepali banks, especially in agriculture and MSMEs.
- Nepal Rastra Bank has revised the lending framework to include tourism, IT-based, and export businesses to mitigate stress.
- Microfinance institutions, heavily reliant on wholesale bank loans, show worsening loan repayments and increased bad loan ratios.
- Economic slowdown and lack of proper protective measures have weakened small entrepreneurs, causing widespread loan distress.
