Financial soundness Indicators of BFIs in Nepal

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1.      Capital Adequacy: Capital Adequacy Ratio (CAR) for commercial banks is 11 %, CAR for development banks is and finance companies is 10 %.

2.      Assets Quality:  Non Performing loan (NPL) in 2021/22 was about 1.31%. Composition of NPL shows some signs of deterioration in asset quality with an increase in restructured/rescheduled loans within the banking sector. Large share of NPL which is about 51.40% in the banking sector falls into the loss category.

3.      Leverage Ratio:  Basel Committee on Banking Supervision introduced leverage ratio that is complementary to the risk-based capital framework and aims to restrict the build-up of excessive leverage in the banking sector. It assesses the adequacy of Tier 1 capital to On balance sheet and off balance sheet exposures. NRB has specified 4% of leverage ratio. It is well above the mandatory requirement in the period 2021/22.

4.      Credit and Deposit Growth: Declined for the year 2021/22.

5.      Profitability: Improved in the review year. Increase in Net interest income (Interest income, ROA, ROE of commercial banks increased)

6.      Liquidity: NRB has been using CD ratio and net liquid assets to total deposit ratio as measures to monitor the liquidity condition in the financial system. Net liquid asset to total deposit ratio is well above the regulatory requirement of 20%. Liquidity injection was done through outright purchase, SLF. Liquidity mop up was done through reverse repo auction and deposit collection.

7.      Base rate of BFIs: NRB introduced the principle of base rate for Commercial banks in 2013 and for development banks and finance companies in 2014. BFIs do not lend below such rate and add premium to the base rate while determining interest rate.

8.      Interest rate spread: Difference between weighted average lending rate and deposit rate. It shows the cost of financial intermediation in a period.

 

 

 

                                               

                                               

  

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