Financial Crime World

Nepal’s Financial Regulator Soundes Alarm on Banking Sector’s Governance Lapses

Published On: April 17, 2024 07:30 AM NPT

By: Republica

Overview

The Nepal Rastra Bank (NRB), the country’s central bank, has raised concerns about the operational and systemic integrity of commercial banks in Nepal in its latest Bank Supervision Report 2022/23. The report reveals a concerning trend of non-compliance with established governance practices by these financial institutions.

NRB Findings: A Troubling Picture of Nepal’s Banking Landscape

The NRB findings paint a troubling picture of Nepal’s banking landscape. Some commercial banks have engaged in questionable lending practices, putting their financial health, and the broader economic stability of the country, at risk.

  • Non-compliant lending practices: Personal loans worth over Rs 5 million have been issued without clear purposes, against NRB regulations. Over financing without proper borrower assessment has led to non-compliance with debt equity ratios.
  • Inadequate documentation: Some banks have failed to rigorously document loan renewals. There is also a lack of adequate reporting on loan exposures.
  • Governance frameworks: A focus on compliance, audit, and risk management issues has been lacking during board meetings. This suggests a systemic undervaluing of strategic governance frameworks in Nepalese financial institutions.

Response: Stepped-up Regulatory Oversight and Accountability

In response to these findings, the NRB has urged for more frequent regulatory oversight. The current practice of annually reviewing Class ‘A’ financial institutions is no longer deemed sufficient to address non-compliant practices. Instead, there is a need for more frequent on-site inspections and real-time assessments.

  • Regulatory measures: Regulatory scrutiny should be matched by punitive measures against non-compliance to act as a deterrent. Banks must be held accountable for implementing new governance frameworks effectively.
  • Technological advancements: Measures like setting up sophisticated video surveillance systems and upgrading technology to enhance fraud detection and prevention are essential.

Conclusion: The Importance of Good Governance

Financial institutions need to realize that good governance goes beyond regulatory requirements and is essential for their long-term health. The NRB’s role in spearheading this shift is critical by conducting more frequent and comprehensive on-site examinations and holding banks responsible for their governance.