Nepal Bank Develops Comprehensive Credit Risk Strategy
Introduction
Kathmandu, Nepal - The Nepal Bank has announced the development of a comprehensive credit risk strategy aimed at mitigating potential losses from lending activities.
The credit risk strategy is designed to cater to various client segments and products, economic sectors, geographical locations, currency, and maturity. The strategy focuses on diversifying its lending portfolio across different markets and industries while maintaining prudent concentration limits.
Credit Policies Guidelines
The Nepal Bank has developed Credit Policies Guidelines (CPG) that outline the bank’s view on business development priorities and terms and conditions for loan approval. The CPG will be reviewed regularly to reflect changes in the economic outlook and evolution of the bank’s loan portfolio.
Key Features of CPG
- Establishes a framework for making investment and lending decisions, reflecting the bank’s tolerance for credit risk
- Sets out clear guidelines for each type of credit, including loans, overdrafts, mortgages, leases, and others
Risk Management Guidelines
The Nepal Bank has developed Risk Management Guidelines that outline the bank’s approach to managing credit risk. The guidelines cover key areas such as:
Key Areas Covered
- Credit policies and procedures
- Credit limits
- Credit origination
- Risk grading systems
The bank’s credit policy sets out a process for ensuring appropriate reporting and approval of credit extensions beyond prescribed limits. It also outlines approvals for disbursements of excess funds over limits and other exceptions to the credit policy.
Credit Procedures
The Nepal Bank has developed procedures that aim to obtain a deep understanding of its clients and their businesses. The procedures capture salient issues regarding the borrower’s industry, macroeconomic factors, purpose of credit, source of repayment, track record, and repayment capacity.
Key Features of Credit Procedures
- Obtain a deep understanding of clients and their businesses
- Capture salient issues regarding the borrower’s industry, macroeconomic factors, purpose of credit, source of repayment, track record, and repayment capacity
Credit Limits
The bank has established exposure limits covering on-balance sheet and off-balance sheet credit exposures for single counterparties and groups of connected counterparties. The objective is to prevent excessive reliance on a large borrower or group of borrowers.
Key Features of Credit Limits
- Establishes exposure limits covering on-balance sheet and off-balance sheet credit exposures
- Prevents excessive reliance on a large borrower or group of borrowers
Conclusion
The Nepal Bank’s Risk Management Guidelines are designed to provide a robust framework for managing credit risk, ensuring the bank’s sustainability and growth while minimizing potential losses. The guidelines will be reviewed regularly to reflect changes in the economic outlook and evolution of the bank’s loan portfolio.