Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: The Nepal Rastra Bank (NRB) has imposed severe restrictions on Karnali Development Bank, barring it from accepting deposits and issuing new loans following the identification of critical financial issues during a recent inspection.
The central bank’s examination revealed that the Nepalgunj-based development bank failed to maintain the required capital adequacy ratio, a fundamental indicator of financial health. Additionally, its non-performing loan (NPL) ratio reached an alarming 40.85%, highlighting the bank’s struggles to manage its loan portfolio effectively. These shortcomings prompted NRB to initiate immediate corrective measures to protect depositors’ interests and uphold the integrity of the banking system.
“In light of the institution’s problematic financial state and to safeguard depositors and the general public, Karnali Development Bank has been prohibited from collecting further deposits, opening new deposit accounts, or issuing additional loans with immediate effect,” NRB stated in its public notice.
This decision comes as a wake-up call for the country’s banking sector, which has faced increasing scrutiny for lapses in financial discipline. NRB emphasized that the action was necessary to prevent further deterioration and ensure public confidence in the financial system.
Interestingly, despite its deteriorating financial indicators, Karnali Development Bank has witnessed a surge in activity on the stock market. The company’s shares have reached a historic high of NPR 840 per share, with a 5.66% rise in value recorded on Monday alone. This anomaly has raised concerns about speculative trading practices, as the bank’s weak fundamentals do not justify the sharp increase in its stock price.
The financial report published by the bank for the first quarter of the current fiscal year paints a grim picture. The bank recorded a net loss of NPR 19.8 million during the three-month period, reflecting its ongoing struggles to generate sustainable income.
NRB’s intervention underscores the importance of regulatory vigilance in Nepal’s banking sector, where capital adequacy, loan management, and transparency remain significant challenges. The central bank is expected to monitor Karnali Development Bank closely in the coming months to ensure compliance with the prescribed corrective measures.
This episode serves as a reminder of the critical need for robust governance and financial discipline in the banking sector, particularly at a time when economic stability is paramount. Stakeholders are now watching closely to see if Karnali Development Bank can recover from this setback and regain public trust under regulatory oversight.
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