The International Monetary Fund (IMF) has urged Nepal to immediately move forward with the long-delayed loan portfolio review (LPR) of ten major commercial banks. The IMF stressed the urgency of the matter, citing increasing risks in Nepal’s financial sector.
According to the IMF, Nepal’s financial sector vulnerabilities have not yet eased, with non performing loans (NPLs) increasing to 5.2 percent in April 2025, posing risks to the capital adequacy of banks and financial institutions.
Rising financial sector vulnerabilities warrant increased vigilance, said IMF in a statement adding that it is essential in this context to launch the LPR in a timely manner and prioritize measures to deal with problematic savings and credit cooperatives (SACCOs).
Despite these risks, the IMF noted that Nepal’s economic recovery is underway. Growth is being supported by rising hydropower output, improvements in the construction and manufacturing sectors, and a strong agricultural performance.
The IMF projects Nepal’s economic growth to reach 4 percent in the current fiscal year, with further improvements expected next year. However, it warned that weak capital expenditure, ongoing financial sector risks, rising trade tensions, and potential policy instability could hinder growth momentum.
However, IMF has repeatedly questioned the accuracy of official figures. The organization has pointed to widespread practices of ever-greening loans (issuing new loans to repay existing ones) as a factor obscuring the true extent of credit risk. The IMF believes that only a thorough, independent review by international auditors will reveal the real quality of loans, and has made such a review a condition of continued support under the ECF.
In the press release issued on Wednesday, the IMF noted that Nepal Rastra Bank (NRB) had reaffirmed its commitment to finalize the selection of independent international consultant to assist with the LPR. This comes in the context of the staff-level agreement reached between the IMF and Nepali authorities during the sixth review under the Extended Credit Facility (ECF) pledged by the IMF.
However, the process has been delayed. Recently, the Supreme Court issued a short-term interim order halting the appointment of a Bangladeshi firm Howladar Yunus & Company, which had been provisionally selected to conduct the audit. The court’s order followed a writ petition filed against the NRB’s selection decision.
NRB had planned to open the financial proposal submitted by Howladar Yunus & Company on June 8. This plan is now on hold due to the court’s intervention.
In the second round of bidding for the audit contract, NRB had shortlisted several firms, including India’s Mehra Goel & Co., JKSS & Associates, SR Batliboi & Associates, KPMG Assurance and Consulting Services, MSKA & Associates, Sri Lanka’s Deloitte Partners, as well as Nepal’s BK Agrawal & Co. and Subedi & Associates, in a joint bid with the Bangladeshi firm.
The initial bidding process had resulted in only one financial proposal from KPMG Assurance and Consulting Services. But it was rejected for exceeding the NRB’s estimated budget. This led to the launch of a second round of bids.
