CBFIN symposium participants stress need to establish asset management company

KATHMANDU: Confederation of Banks and Financial Institutions Nepal (CBFIN), in collaboration with Dolma Consulting, recently held a programme titled 'A Symposium on Asset Reconstruction Business'. National and international experts and stakeholders discussed issues related to bad and non-performing loans, non-banking assets of banks and financial institutions (BFIs), the serious challenges these pose, and potential solutions.

Despite Nepal's banking sector being transparent, dynamic, well-governed, responsible, and sensitive, and continuing to progress despite challenging circumstances, it is prudent to assess and evaluate potential crises and risks caused by the increase in credit and non-banking assets in a timely manner to ensure sustainable development within the sector. CBFIN Senior Vice President Rajesh Upadhyay highlighted that, as a responsible organisation, CBFIN has taken the lead in this matter, which will significantly help strengthen the country's economy. Since the Covid 19 pandemic, CBFIN has been continuously raising issues regarding the establishment of suitable institutions for the proper management of non-banking assets and the ever-increasing non-performing loans of BFIs, Upadhyay stated. He expressed his belief that, despite the Government of Nepal and Nepal Rastra Bank (NRB) considering the establishment of an asset management company, the programme discussing such an issue will serve as a useful guide.

CBFIN Deputy Director General Roshan Koirala presented an informative paper on the current situation and trends of bad loans and non-banking assets of BFIs. Former Chief Executive Officer and Managing Director Vinayak Bahuguna, from India's Asset Reconstruction Company (India) Ltd (ARCIL), presented a working paper on current international concepts, practices, preconditions, practices in India, and Nepal's focus on managing non-performing loans and non-banking assets. Bahuguna suggested that setting up a property management/reconstruction company is important but it can also be unfavourable in some cases, so caution is necessary. The success of asset reconstruction and asset management companies depends on several factors, including the country's financial stability and dynamics, favourable environment and policy, political commitment and cooperation, non-performing loan and asset statistics, statistical analysis and classification, investment, investor and market conditions, favourable legal environment, regulatory competence, and efficient human resources. He mentioned that although initial management and operation of such companies in India faced problems, recent results have been positive.

During the discussion, Siddhartha Bank Chairman Manoj Kumar Kedia, Mahalaxmi Bikas Bank Chairman Rajesh Upadhyay, Nepal SBI Bank Ltd (NSBL) Managing Director and CEO Dipak Kumar De, and senior chartered accountant Prabhu Ram Bhandary participated as panellists. They discussed the need, justification, complexity, and potential direction of the asset reconstruction company. The discussion was moderated by former CEO of Standard Chartered Bank Nepal, Joseph Silvanus.

Experts discussed the post-pandemic economic recession, its impact on BFIs, issues with loan repayments, the sale of movable assets held by banks, the slowdown in economic activity, and the impact on the purchase and sale of auctioned real estate. The panellists agreed that the establishment of an asset reconstruction company is crucial, given the massive contraction in the banking sector and the increasing non-banking assets, which are gradually affecting the overall economy.

As bad loans and non-banking assets of BFIs continue to accumulate annually, the situation is worsening, necessitating the immediate establishment of a permanent asset management company to address this issue in the long term. Participants expressed concerns about the significant rise in bad loans and non-banking assets and suggested that such a company should be established without delay to protect the entire banking system from potential adverse conditions and prevent severe economic damage. They also pledged support and investment for the establishment of an asset reconstruction company.

CBFIN President Upendra Prasad Poudel stated that Nepal's banking sector is the most transparent, dynamic, well-governed, and responsible sector. However, despite managing past challenges, the risk is increasing due to forced and intentional defaulters. Poudel stressed that BFIs should now focus more on debt collection and managing non-banking assets rather than purely banking services and activities. This shift is essential not only for the banking sector but also for the economy.

Poudel highlighted the problems arising from the increasing non-performing loans and the difficulty in selling mortgaged assets. An ironic situation has emerged where BFIs hold more immovable assets than money. He emphasised that asset reconstruction companies are necessary to focus on purely banking activities. Poudel urged NRB to move forward with the commitment and support of the Nepal government to establish an asset reconstruction company with the right structures, policies, mandates, and skilled manpower. The establishment of such companies will contribute to the sustainable development of the banking system and build a strong economy.

The programme was attended by chairpersons, directors, CEOs, senior managers from concerned institutions, development partners from all BFIs operating in Nepal, high officials of NRB, and senior journalists.