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  • FINANCIAL STABILITY

    REPORT

    Nepal Rastra Bank

    Central Office

    Baluwatar, Kathmandu

    March, 2016

  • FINANCIAL STABILITY

    REPORT

    (Issue No. 7)

    Nepal Rastra Bank

    Baluwatar, Kathmandu

  • Disclaimer

    This seventh issue of the Financial Stability Report is based on the provisional data

    of Bank & Financial Institutions (BFIs) and other financial institutions as of mid-

    July 2015. Data used in its analysis may thus differ from the most recent statistics

    or audited final data published by BFIs. All the findings, interpretation and

    conclusions expressed in this report do not necessarily reflect the views of Nepal

    Rastra Bank or its Board of Directors. The colors, boundaries, denominations or

    any other signs and symbols used in the report do not imply any metamorphic

    judgments. This report, unless or otherwise stated elsewhere, covers the

    developments and risks during the year to mid-July 2015. All the data and

    information in this report are retrieved from NRB depository, unless stated.

    Nothing herein shall constitute or be considered to be a limitation upon or waiver

    of the provisions of existing rules, regulations and legislations.

    Published by:

    Nepal Rastra Bank

    Central Office

    Banks and Financial Institutions Regulation Department

    Financial Stability Unit

    Baluwatar, Kathmandu

    Nepal

    Ph: 977 1 4411407

    Fax: 977 1 4414552

    Email: fsu@nrb.org.np

  • Contents

    Foreword

    Acronyms

    Executive Summary

    Chapter – One: Macroeconomic Development 1-14

    Global Economic Development

    Inflation

    Crude Oil

    Domestic Macroeconomic development

    Economic Growth

    Inflation

    Government Finance

    External Sector

    Monetary Situation

    Liquidity Situation

    Chapter – Two: Financial System Performance and Stability 15-55

    Global Financial Stability Overview

    Overview of Nepalese Financial System

    Structure and Performance of Bank and Financial Institution

    Assets Growth in Nepalese Banking System

    Credit Distribution in Banking Sector

    Real Estate Lending

    Directed Lending

    Liability structure of the banking sector

    Financial Soundness Indicators

    Banking Sector Consolidation: Mergers & Acquisitions

    Financial Access and Inclusion

    Performance and Reform of State Owned Banks

    Impact of Nepal Earthquake 2015 on Financial Stability

    Chapter– Three: Performance of Financial Institutions 56-74

    Performance of Commercial Banks

    Stress Testing of Commercial Banks

    Performance of Development Banks

    Stress Testing of Development Banks

    Performance of Finance Companies

    Stress Testing of Finance Companies

  • Performance of Microfinance Development Banks

    Chapter– Four: Cooperatives, FINGOs and Other FIs 75-82

    Performance of Cooperatives

    Financial Non-Government Organizations

    Rural Self-Reliance Fund (RSRF)

    Other Financial Institutions

    Insurance Companies

    Employees Provident Fund

    Citizen Investment Trust

    Chapter– Five: Financial Markets 83-88

    Global Financial and Money Market

    3-month US Government Treasuries

    10-Year US Government Bond

    Dollar Index

    Domestic Financial Market

    Money Market

    Securities Market

    Chapter – Six: Financial Sector Policies and Infrastructures 89-104

    Financial Sector Policies

    Capital Enhancement of BFIs

    Financial Sector Regulations

    Regulation to promote agriculture sector

    Additional Provisions Regarding Possible Loan Losses

    Additional Regulations on Corporate governance

    Regulations on AML and CFT

    NFRS Implementation Guidelines to BFIs

    Financial Market Infrastructure

    Payment and Settlement

    Implementation of MICR

    Monetary Policy 2015/16

  • Statistical Annex

    Annex 1: Structure of Nepalese Financial Sector

    Annex 2: Aggregate Statement of Assets and Liabilities of BFIs

    Annex 3: Statement of Assets and Liabilities of BFIs

    Annex 4: Major Financial Indicators of MFDBs

    Annex 5: Aggregate Sector-wise, Product-wise and Security-wise Credit by BFIs

    Annex 6: Aggregate Profit and Loss Account of BFIs

    Annex 7: Financial Soundness Indicators of BFIs

    Annex 8: Stress Testing Results for Commercial Banks

    Annex 9: Composition of Financial Stability Oversight Committee

    Annex 10: Composition of Financial Stability Sub-Committee

    List of Boxes

    Title Page No.

    Box 6.1: Provisions for Classification of Loans/Advances

    And Loan Losses 92

    Box 6.2: BCBS Principles for Enhancing Corporate Governance 94

    Box 6.3: Nine Strategic pillars of Nepal National Payment

    Development Strategy 99

  • List of Figures

    Title Page No.

    Figure 1.1: Global Inflation 4

    Figure 1.2: Europe Brent Spot Price

    5

    Figure 1.3: GDP Growth Rate at basic prices 6

    Figure 1.4: Sectoral GDP Growth 11

    Figure 1.5: Changes in Consumer Price Index

    10

    Figure 1.6: Government Expenditure and Revenue

    10

    Figure 1.7: Growth in Remittance Inflow and Total Reserve 12

    Figure 1.8: Money Supply Growth 13

    Figure 2.1: Global Financial Stabiliy Map 16

    Figure 2.2: Structure of Assets Holding in Financial System

    22

    Figure 2.3: Total Assets and Assets to GDP Ratio Growth

    23

    Figure 2.4: Number and growth of BFIs licensed by NRB

    24

    Figure 2.5: Total Assets of Banking System and Assets Growth 25

    Figure 2.6: Major areas of Credit distribution of BFIs

    26

    Figure 2.7: Product wise lending of BFIs

    26

    Figure 2.8: Real Estate Exposures of BFIs 27

    Figure 2.9: Loan against collateral of Fixed Assets

    28

    Figure 2.10: Productive Sector lending of commercial banks

    29

    Figure 2.11: Deprived Sector lending of BFIs 30

    Figure 2.12: Liability Structure of BFIs

    30

    Figure 2.13: Deposit Liabilities by types of Account

    31

    Figure 2.14: Capital Fund and CAR of BFIs 32

    Figure 2.15 : Capital to Tier-1 ratio and overall CAR and number

    of compliant BFIs 33

    Figure 2.16: NPL of BFIs 34

    Figure 2.17: Provision Versus Actual Loan Loss 34

    Figure 2.18: NPL composition of BFIs 35

    Figure 2.19: Leverage ratio of Commercial Banks

    36

    Figure 2.20: Trends in Credit Growth

    37

    Figure 2.21: Trends in Deposit Growth 37

  • Title Page No.

    Figure 2.22: Credit, Deposit and CD Ratio of BFIs 38

    Figure 2.23: Credit, Deposit with GDP ratio and saving deposit

    ratio of BFIs

    38

    Figure 2.24: Class wise Profitability of BFIs 39

    Figure 2.25: Net Profit, ROE, ROA and Interest Margin to Gross

    Income 39

    Figure 2.26: Income distribution of BFIs

    40

    Figure 2.27: Liquidity in BFIs 41

    Figure 2.28: Base Rates of Commercial Banks

    44

    Figure 2.29: Net interest spread of CBs in percentage point

    45

    Figure 2.30: Deposit Rate, Lending Rate, Spread Rate & Base

    Rate

    46

    Figure 2.31: Status of BFIs Merger

    47

    Figure 2.32: Branches of BFIs

    50

    Figure 2.33: Highest and Lowest Concentration of BFIs 51

    Figure 2.34: Share of SOBs in Total Assets of CBs

    52

    Figure 2.35: Paid-up Capital, Capital Fund & Deposits of SOB 53

    Figure 2.36: Capital Adequacy in SOBs 53

    Figure 2.37: NPL and LLP Ratios of SOBs

    54

    Figure 3.1 :Capital and Net Liquidity of Commercial Banks

    57

    Figure 3.2: Base Rate and Spread Rates of National Level

    Development Banks

    63

    Figure 4.1: Capital (LS), Deposit and Credit growth in

    Cooperatives 76

    Figure 4.2: No. of Policies issued by insurance companies 80

    Figure 5.1: Daily US Treasury Yield Curve Rates of 3-Month T-

    bill 83

    Figure 5.2: Daily US Treasury Yield Curve Rates of 10-Year T-

    bill 84

    Figure 5.3: Movement of Daily Dollar Index 85

    Figure 5.4: Weighted Average Treasury Bill Rate 86

    Figure 5.5: Weighted Average Inter-bank Rate

    87

    Figure 5.6: Movement of Nominal Exchange Rate (NRs/US$) 87

    Figure 5.7: NEPSE Index and Sensitive Index

    88

  • List of Tables

    Title Page No.

    Table 1.1. Overview of the World Economic Outlook Projections 2

    Table 1.2: Summary of Earthquake Disaster Effects 9

    Table 2.1: Number of BFIs and Other Institutions 20

    Table 2.2: Structure of the Nepalese Financial Sector 21

    Table 2.3 Productive Sector Loan 29

    Table 2.4: Financial Soundness Indicator

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