NRB cuts risk weight on certain SME loans to 60 pc

KATHMANDU: Nepal Rastra Bank (NRB) has cut the risk weight on certain small and medium enterprise (SME) loans to 60% to channel more credit into productive sectors of the economy.

The move was announced in a circular issued through the Banks and Financial Institutions Regulation Department on Sunday, amending the Unified Directives, 2082. The central bank said the reduced risk weight will apply to loans of up to Rs 30 million granted to SMEs that meet specified eligibility and security conditions.

The directive covers all licensed "A", "B" and "C" class banks and financial institutions (BFIs) and is to be implemented immediately.

The benefit is limited to SMEs operating in three priority areas: agriculture industries, information technology (IT) industries and manufacturing industries. To qualify for the 60% risk weight, loans must be either guaranteed by the Deposit and Credit Guarantee Fund or fully secured by land and/or buildings.

For property-backed loans, lenders must maintain a safety margin of at least 25% on the fair market value of the assets. Every eligible project must also carry project insurance.

Copies of the directive have been forwarded to the Ministry of Finance, the Governor’s Office and industry bodies, including the Nepal Bankers’ Association and the Development Bankers Association Nepal, to ensure sector-wide compliance.

By lowering the risk weight, NRB allows banks to set aside less capital against qualifying SME loans. The move could enable lenders to offer cheaper credit and expand their SME portfolios in the targeted sectors, which observers say is intended to stimulate investment and job creation in agriculture, IT and manufacturing by improving access to finance for smaller firms.