Likewise, it has also instructed Ministry of Finance (MoF) to develop a concrete concept paper on setting up an All-Powerful High-level Committee to Settle Bad Loans for dealing with the bad assets that the AMC might fail to manage.[break]
FSCC headed by the finance minister issued such instructions to MoF and NRB when it reviewed the latest outlook of the financial sector on Thursday. The instruction has come at a time when banks and financial institutions (BFIs) have been recording a rapid rise in their loan loss provision and expressing fear over their assets turning bad due to gloom in the real estate sector.
Real estate, which is in a bad shape for more than two years, has absorbed more than Rs 67.65 billion loans from the commercial banks alone. And banks have also been citing that their loans of around Rs 12 billion pledged to the crusher industry has turned bad following government´s restrictions on their operations.
Moreover, the latest unaudited financial statements of the commercial banks have shown that their cumulative provision for loan loss soared by 71 percent during the first quarter of their fiscal year.
“The FSCC meeting held on the day has also decided to request Ministry of Foreign Affairs (MoFA) to initiate diplomatic efforts to recover bank guarantee amount that Nepali banks have failed to received from the Chinese contractor of Melamchi Drinking Water Project,” MoF said, issuing a press statement.
Bank of Kathmandu has US$ 6.2 million and 1.4 million euros to receive from the China Construction Bank for bank guarantee that it pledged for advance payment to China Railway 15 Bureau Group Corporation, the contractor for Melamchi Water Supply Diversion Project. Likewise, the Chinese bank also owes $6.2 million to Himalayan Bank for guarantee provided against performance bond issued by the Melamchi project contractor.
Though the bank guarantee and performance bond assured full payment to the Nepali banks, the Chinese bank has refused to honor the contract and release the payments after the government ousted the Chinese contractor on ground of poor performance.
During the meeting, representatives in the FSCC expressed concern over sharp rise in trade deficit, which has already crossed over Rs 158 billion in the four months of 2012/13. However, the committee has assessed the overall macroeconomic indicators were pretty good.
The FSCC on the day also decided to instruct the Ministry of Cooperative and Poverty Reduction (MoCPR) to tighten its vigilance on the operations of the saving and credit cooperatives. “The meeting also decided to request the MoCPR to make arrangement to restrict the cooperatives from issuing loans against good for payment check."
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