Non-banking Assets of BFIs Increasing

Over the past four years, the size of non-banking assets of banks and financial institutions has increased nearly fivefold. In the fiscal year 2020/21, such assets amounted to Rs 7.69 billion, but by mid-June 2025, they had reached Rs 45.70 billion.

Even after publishing notices in newspapers, collateral and non-banking assets remained unsold, so banks and financial institutions have recently started posting auction information on their own websites.

By law, banks must publish auction notices in national daily newspapers. Initially, they must issue notices with a 35-day deadline, then 21-day, and finally 7-day deadlines. If the borrower does not respond, only then can the bank proceed with the auction after publishing the notice. However, due to weak economic activity, collateral auctions are not happening, causing non-banking assets to pile up. A senior bank official said that since repeated notices in newspapers failed to sell these assets, banks are now trying to reach customers through their websites.

“Until two years ago, collateral would be sold immediately after the notice was published,” the official said. “Now, since auctions are failing and non-banking assets are accumulating, we have introduced new ways to attract customers.” He explained that sluggish real estate transactions, problems in cooperatives, and inflated property valuations have all made selling assets difficult.

Banks have begun adding separate web pages under names like Auction Assistance, Auction Hub, and Auction Portal to publish information about collateral auctions and the sale of non-banking assets. These pages include property details with photos, plot numbers, area maps, and even Google Maps for location identification. Customers can also contact banks online for more information and to purchase listed assets.

Rising Non-banking Assets

According to Nepal Rastra Bank (NRB), the total non-banking assets of banks and financial institutions reached Rs 45.70 billion by mid-June 2025. Of this, commercial banks account for Rs 38.79 billion.

As non-banking assets have continued to accumulate, NRB had announced the establishment of an Asset Management Company in the previous fiscal year’s monetary policy. However, the necessary legal framework for this has not yet been created.

Similarly, a high-level economic reform committee led by former finance secretary Rameshore Khanal had also recommended establishing a “bad bank” to manage such assets, but this has not been implemented either.

If collateral of bad loans is not sold at auction and is instead taken over by the banks themselves, it is considered a non-banking asset. Since most bank loans are tied to real estate, non-banking assets are also largely made up of land and buildings.

The government, however, has tightened regulations by amending the law to require banks to sell such assets within a specified period. The Land Act, 2021 (1964) states that land acquired as non-banking assets by banks, financial institutions, or cooperatives must be sold within three years. If unsold within that period, government approval is required for the sale.

According to Section 12 (F) of the Act: “If any bank, financial institution, or cooperative takes over collateral land due to failure of auction sales, such land must be sold within three years from the date of acquisition. If not sold within that period, approval from the Government of Nepal will be required for the sale.”

Since many such assets remain unsold, banks have been lobbying to remove the three-year sale provision from the law.