Commercial Banks Improve Non-Performing Loans, Drop by 3.01% in Three Months

Commercial banks have successfully reduced their non-performing loan (NPL) ratio by 3.01% over the past three months. As of the end of Chaitra, the NPL ratio was at 3.89%, which further dropped to 3.76% by the end of Asar. This decline is mainly attributed to the banks' focused efforts on loan recovery, allowing them to improve their positions after carrying the heaviest burden of bad loans in a decade.

Decline in NPL Ratio:

• End of Chaitra: 3.89%

• End of Asar: 3.76%

• Decline: 3.01%

Increase in Bad Loans and Causes: Due to delays in payments in the construction sector and sluggish economic activities, banks had been struggling to recover loans, leading to a peak in bad loans. Although the central bank instructed commercial banks to keep their NPL ratio below the 5% threshold, the ratio had climbed to 3.89% in the third quarter of FY 2080/81, from 3.61% in the first quarter.

Banks' Efforts: In the fourth quarter, banks intensified their efforts in loan recovery, successfully limiting the NPL ratio to 3.76%. During this period, banks appeared to have paused loan expansion and concentrated on recovering existing loans.

Conclusion: Despite the current economic challenges, commercial banks have managed to reduce their NPL ratios. Although the NPL ratio remains higher than in previous years, the banks' efforts have set the stage for further improvement. To minimize future loan recovery challenges, banks need to continue striving to keep the NPL ratio below the 5% threshold.