NRB mulls special purpose vehicle to manage BFIs’ NPL
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KATHMANDU, JAN 03 -
The Nepal Rastra Bank (NRB) is preparing to set up a special purpose vehicle (SPV) that would manage non-performing loans (NPL) and collaterals of banks and financial institutions (BFIs).
With the recovery of realty loans proving difficult, the central bank’s move is aimed at avoiding possible loan defaults and their impact on the financial system. The government, under its financial sector reform programme (FSRP) that ended in 2011, had planned to establish an asset management company (AMC) mandated to perform similar tasks, but could not be executed.
“SPV is being formed to rescue BFIs facing trouble due to high NPL level,” said a senior NRB official. “The present state of the realty loan recovery prompted us to come up with the idea.”
International Monetary Fund (IMF) said in its recent report on Nepal that the present circumstances suggest that 25 percent of the performing real estate and home loans may turn to loss loans. And if this happens, 13 private banks accounting for 48 percent of the system deposits would see their capital adequacy ratio fall below 10 percent, said IMF. Commercial banks are required to maintain capital adequacy ratio at least at 10 percent.
However, the central bank has not taken a formal decision regarding the establishment of SPV. “It is just an exercise to be ready for taking any measure to ensure financial stability,” said the NRB official. “If repayment becomes smooth, SPV may not come into existence.”
The modality of SPV and whether it should be formed under a separate act or a regulation are yet to be finalised. AMC was expected to be formed under a separate act. The NRB official said the modality would be finalised after holding discussions with stakeholders. “As bringing an act is a long and complicated process, regulation might be an option for early establishment of SPV,” said the official.
Financial resources for SPV can be generated with the contribution from stakeholders concerned, according to the official. “The government, central bank and other BFIs may have to make investment initially,” said the official.
Posted on: 2012-01-03 09:07
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