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Private sector organisations bring to govt's attention detention of BFI employees over loan issues

B360
B360 March 3, 2024, 8:56 am
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KATHMANDU: Banks and financial institutions (BFIs) in the country are operating following the Acts related to banks and financial institutions, and regulatory directives issued by Nepal Rastra Bank (NRB), according to private sector umbrella organisations — Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI), and Nepal Chamber of Commerce (NCC).

The detention of BFI employees over loans issued based on mortgage valuations has drawn the attention of private sector organisations.

In a joint press statement, these organisations stated that BFIs have been managing deposit collection and credit investment, adhering to the Act and the directives issued by the central bank. They emphasised that decisions regarding investments in BFIs are made following the prescribed principles, rules, and regulations.

The statement clarified that commercial loans are allocated towards fixed and working capital, depending on the industry. Fixed capital loans are available for assets such as land, buildings, and machinery, secured by the same property. Working capital loans are determined based on current assets like the stock of goods for production and business, and outstanding receivables. Hypothecation loans, which are issued based on stock and goods for working capital, are accepted under the Act and NRB directives.

The statement acknowledged that during business downturn, credit risk can increase due to a decrease in goods and receivables. In response, BFIs have set aside funds for risk management as per regulatory guidelines.

The statement said, "Risk management is a consideration in any investment decision within BFIs. All employees and board members act to ensure compliance with the law. Factors such as a recession, changes in consumer tastes, competitive strategies, and business fluctuations can affect a business's ability to repay loans. An example of this is the concessions provided by NRB to alleviate the impact on industry and business during the Covid 19 pandemic and the current economic recession."

"Credit management should be evaluated based on these factors, and we understand that the NRB has been overseeing the financial stability of BFIs through regular on-site and off-site inspections, including granting approval for the publication of financial statements," the statement read. "In this practice, the regulatory body has carried out its responsibilities by providing guidelines to BFIs."

The statement further suggested that the assessment of loans provided by BFIs should be conducted following these factors. However, it was clear that in instances of error or ill intent, the officials involved should face legal repercussions.

The statement continued, "Even those who are not directly involved in any BFIs, but are working under the legal framework, policies, and directives of the regulatory bodies, are being made to suffer due to their official position or document signing responsibilities. We urge all concerned parties to consider the impact such actions can have on the efficiency of banks, their decision-making abilities, and morale, which in turn can affect the expansion of credit and the growth and development of the economy."

The organisations suggested taking action if found guilty during an investigation. However, they have also appealed to all concerned parties to be aware that recent activities in a sector like banking may have more negative effects than positive outcomes.

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