Nepal Rastra Bank’s recently published annual report from the Bank Supervision Department has highlighted a number of structural weaknesses and operational concerns within Nepal’s banking sector. While banks continue to report profits on the surface, the report points to underlying issues related to asset quality, governance standards, internal controls, and risk management practices.
One of the major concerns identified in the report is the growing pressure from non-performing loans (NPLs) and practices aimed at masking their actual condition. According to the findings, some institutions have been engaging in loan “evergreening,” where new loans are extended to borrowers to repay existing obligations and prevent loans from being classified as non-performing. Such practices may temporarily improve financial indicators but can obscure the actual quality of bank assets and delay recognition of financial stress.
The report also raised concerns regarding corporate governance and institutional oversight. In several cases, roles designed to function independently—such as Chief Risk Officers and internal auditors—were reportedly subject to evaluation processes that may reduce their operational independence. The report further noted weaknesses in board-level oversight, with large numbers of agenda items limiting detailed discussion of risk-related decisions.
Another issue highlighted involves post-loan monitoring and internal audit systems. The report indicates that some institutions have shown inadequate follow-up regarding how approved loans are ultimately used, increasing operational and compliance risks. Concerns were also raised over internal audit capacity, staffing quality, employee rotation practices, and long-term talent development within financial institutions.
Technology and security controls were identified as another area requiring improvement. The report referenced weaknesses in ATM infrastructure management, physical security procedures, CCTV data retention, and regulatory reporting accuracy. These findings suggest that stronger compliance mechanisms, improved governance standards, investment in technology systems, and stricter supervisory oversight may be necessary to strengthen long-term confidence and stability in Nepal’s banking sector.
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