Abstract

This research aims to find out cause of credit crisis in Nepalese commercial banks and   development banks. The research will discover credit risk management system, internal controlling system of bank and financial institutions, role of central bank, political, economic environment and   other environments for credit crisis.

Credit crisis has direct relationship on non-performing loans of the banks. The high non-performing loan indicates the economic crisis of the country and   that weigh down to the economic development of the country. The role of board of directors, chief executive and senior management is very important to control credit crisis in bank and financial institutions. The policy governed by the central bank and other banks and financial institutions can play vital role to control credit crisis.

Good governance is the major factor of credit crisis. Establishing the good governance in the organization is most important to control credit crisis.

Keywords: Banks, credit crisis, credit risk management, economic development, Nepal, non-performing loan.

  1. Introduction:

Credit crisis is that stage where several bank and financial institutions (BAFI) issue or sell high-risk loans that start to default. The BAFI stop receiving loan repayment from the borrowers and start suffering from huge loss is the stage of credit crisis.

Different data and reports revealed that approximate 67% of total bank’s income is generated through loan interest income. As a result, banks seems unable to grow their business due to the loss and unsecured lending sectors. A crisis occurs when multiple factors like market environment, political environment, business environment etc. come together in market places affecting large number of credit clients.

There were only two government owned commercial banks namely Nepal Bank Limited (NBL) and Rastriya Banijya Bank Limited (RBB) and two government owned development banks Agriculture Development Bank Limited (ADBL) and NIDC Development Bank Limited (NICD) before liberalization policy in Nepal. After liberalization policy, the door for private BAFI are found opened and many private BAFI started their operation in all over the country.

Liberalization in banking sectors permit private banks to get established which created the environment of competition among banks. Before adopting liberalization policy by the government, there were limited banks thus there were no competitors in banking sectors in Nepal. Clients had to influence bank’s staffs to get loan from banks. There was no capacity development programs to the bank’s staffs. Country was facing problem of political instability. Bank’s CEO was appointed by the government. Banks had to face huge political pressure to approve some huge projects without professional judgments i.e. without proper credit appraisals (Adhikari, Panta and Dhungana, 2007).

The ratio of gross non-performing loans (NPL) of the banking system stood as high as 41 percent in 1998, which came down to 31.5 percent in December 2001. As a result of the policies adopted in recent years, the NPL of the banking system as a whole went down to 17.6 percent in December 2004. The NPL ratio of Nepalese commercial banks improved from 37 percent to 25.3 percent. Public sector’s commercial banks NPL position improved from 17 percent to 8.5 percent. The improvement in the NPL of private banks observed remarkable (Adhikari, Panta and Dhungana, 2007).

The average NPL of commercial banks of Nepal on Mid July 2016 was 1.82% and average NPL of development Banks was 1.48%. The NPL of NBL, RBB,ADBL and  NIDC decreased to 2.72%, 3.95%, 3.85% and  11.38%  respectively on Mid July 2016 (Nepal Rastra Bank, 2017).

Literature Review:

Credit crisis is the worse situation for the country’s economy. A well credit risk management (CRM) system impacts on credit crisis positively. CRM has direct relationship with credit crisis.

Hutchison and McDill (1998), has analyzed the main reasons for banking crisis in Japan were: 1. the failure by regulatory authorizes to come to a timely recognition of the full magnitude and implication of the banking crisis, 2. the delayed response of regulatory authorities, especially the failure to deal decisively with bankrupt institutions and 3. The lack of political courage required to confront the bank crisis and the reluctance to commit public funds to financial restructuring.

Cargill, Hutchison and Ito (1997) has stated that the main cause of banking crisis of Japan are: 1. The failure most of the decade to resolve non-performing loans that held back the economy and  stagnated a large part of the real estate market, 2. Japanese bank bureaucrats who feared to take measures that would result in piercing of the bubble, and  3. The choice by regulatory authorities to adopt the easy course of relying on administrative guidance to monitor bank and non-bank depositors rather than breaking new ground and  writing tough, adequate criteria that might have driven the more unsound banks into failure.

ArjunaAbeysinghe (2004), found that, the reasons behind the crisis of Pramuka Saving and Development Bank Srilanka were: 1. Negative Net worth of Rs. 230 million as on 30th September 2002, 2. Very large percentage of non-performing loans which was more than 75%, 3. Bribery commission by the Director Bank Supervision of Central Bank, that gratification have been given to public officers to obtain deposits, 4.Inability to maintain Statutory Liquidity Assets Ratio of 20% and 5. Violation of regulation of central bank etc.

Adhikary (2002) has stated that, the non-performing loans in banking sectors of Bangaladesh is higher than India and Srilanka due to: 1.Dissatisfactory performance of the courts (Money Loan Court, Bankruptcy Court and PDR Court), 2.Unavialibility of Assets Management Company, 3. Lack of maintaining of an ethical standard in the banking professionals, 4.Higher side of non-performing loans in micro and agriculture loan due to lack of an effective financial tools etc.

Khim (2006), has found that, major reasons brought the crisis to Korea are: 1.Goverment started to fulfill long term financial requirement by short term financing sources. Due to this, the banks accounted 61% of short term external debts out of total external debts in 1996. 2. Korea faced shot fall of foreign reserve by $54.7 billion due to the high short term external debts. 3. Weak prudential supervision of the central bank. 4. Increment of Us Dollar heavily in the determination of the Korean Won. 5. Failure of big industries like Hanbo, 6. Decline in Stock Market etc.

Nelson, Belkin and Mix (2011), has stated that, the major causes of Greece’s Debt Crisis of 2008-2009 was: 1. Budget deficit and increase in government debt, 2. Lost in faith of investors in government, 3. Downgrading of government bonds by credit rating agencies, 4. Budget mismatch due to spending approximately 75% of total budget on public administration and social benefits etc.

Hemachandra (2011), stated that, the cause of financial crisis vary depending on the nature of crisis. The causes may be due to the macroeconomic circumstances, due to errors in macroeconomic policies adopted by relevant authorities, high interest rates, shift of exchange rate regimes, unfavorable microeconomic policies, Lack of transparency in providing information to supervisor authorities, weakness in the supervisory role of BAFIs etc.

Brunnermeier (2009), found that, two trends in banking industry contributed significantly to the lending booms and housing frenzy that, the foundation of 2007-2008 crisis.  The 2007-2008 crisis has been surprisingly close to a “classical banking crisis”.

  1. Problem and Objectives

This research aims to answer the following main question. (Does credit crisis effect on overall performance of Nepalese BAFIs?)

The present study attempts to achieve the following objectives:

To examine the cause the credit crisis in Nepalese BAFIs.

To examine the factors influencing credit crisis in Nepalese BAFI s.

To know the impact of the credit crisis on BAFIs.

  1. Data and Methods

The researcher has used both qualitative and quantitative method for this research study and used various research tolls like personal interview, questionnaires,  expert’s opinions, etc under casual research survey. Both primary and secondary data has been collected and used in this study. Primary data has been collected via telephone interview, direct observation, questionnaires etc. Priority has given to collect primary data for addressing the issues of target group, to interpret data in a better way, fresh and reliability of data.

The researcher has collected various secondary data from concerned BAFI. Other required information and data have been downloaded from website of concerned BAFI and Nepal Rastra Bank (NRB). Furthermore, some of the data like research articles and information has been obtained from central bank and other necessary data are downloaded from websites.

Addition to this, other data, information and materials from various websites, books, magazine, newspapers, journals, archives, publication and etc. has been obtained. The factors affecting credit crisis has been measured through summative scale calculated by simple arithmetic mean x = xin .

The researcher has selected 13 (100%) problematic BAFI (as on Mid July 2016) and 4 (100%) liquidated BAFIs to complete this research study. Furthermore, some previous problematic commercial banks, development banks and finance companies are also taken on random sampling method to find out better research result. Sampling covered more than 80% BAFI s which had faced credit crisis in Nepal (Nepal Rastra Bank, 2017).

The research survey is based on questionnaires. The questionnaires was pre-tested among 20 persons and analyzed with the help of SPSS software.

A structural research questionnaire was developed and distributed to 150 bankers to enquire clear and essential research information.

Massive Lending Massive Lending
Independent Variables
Dependent Variables
Political Influence
Lack of Internal Control
Lack of Strict Regulation
Huge Investment in Real Estate and Unproductive Sector
Credit Crisis
Insider Lending
Lack of Corporate Governance

Figure: 1. Credit crisis in dependent variable on various independent variables as mentioned. The concept is similar to the analysis of (Bhattarai, 2015).

  1. Discussion and Analysis

The study shows that, there is positive relationship between massive lending, insider lending, lack of corporate governance, lack of internal control, lack of strict regulation, huge investment in real estate and  unproductive sector and  political influences with credit crisis whereas credit crisis has negative relationship with bank’s growth.

“Insider lending” has been ranked as highest influencing factor of credit crisis with weighted rank of 398. Out of the 150 respondents, insider lending ranked by 38 respondents rank 1 with mean of 14.21, 33 respondents rank 2, 38 respondents rank 3, 25 respondents rank 4, 16 respondents rank 5, none respondents rank 6 and  7 and  total weighted rank is calculated 398.

Responses to the questionnaires sheet: Table: 1

  1. Factors ranked which has influence to bring credit crisis in Nepalese BAFI.
Factor 1 2 3 4 5 6 7 Total Weighted Total Weighted Mean Rank
Massive Lending 4 7 8 8 10 40 73 150 875 32.25 7
Insider Lending 38 33 38 25 16 0 0 150 398 14.21 1
Lack of Corporate Governance 33 29 29 38 21 0 0 150 435 15.54 3
Lack of Internal Control 3 8 7 3 27 54 48 150 847 30.25 6
Lack of Strict Regulation 39 30 33 35 13 0 0 150 403 14.39 2
Huge Investment in Real Estate and  Unproductive Sector 8 15 7 9 40 42 29 150 750 26.79 5
Political Influence 25 28 28 32 23 14 0 150 492 17.57 4
Yes No Don’t Know Total
B. Do you think credit crisis has impact on bank’s growth in Nepal? 150 0 0 150

Likewise, lack of strict regulation is ranked no. 2 with mean of 14.39 and weighted rank of 403. Lack of corporate governance is ranked to no. 3 with mean of 15.54 and weighted rank of 435. Similarly, political influences are ranked no. 4 with 17.57 and weighted rank of 492. Huge investment in real estate and unproductive sector is ranked to no. 5 with mean of 26.79 and weighted rank of 750, similarly, lack of internal control is ranked to no. 6 with mean of 30.25 and weighted rank of 847. Massive lending is ranked to no. 7 with mean of 32.25 and weighted rank of 875.

Out of 150 respondents, 100% responded agree that, credit crisis has adverse impact on growth of the bank in Nepal.

4.1 Credit Crisis

June 1932 was the greatest panic for banking sector due to the greatest depression. Chicago banks were failed and they were dividing into 3 groups: 1. panic failures, 2. failure outside the panic window and 3. Survivor. Due to this banking panic, the central event of the great depression, the banking sector got attention and much research has focused on the effect of the crisis. The researchers interpreted the origin of the banking crisis in three events: 1. a decline in the quality of bank assets, 2. a loss of public confidence in the banking system, and 3. a fall in agricultural incomes (Calomiris, C.W. & Mason, J.R., 1994).

Any events in which banks fail, such as a recession, or in which there is financial market turmoil, such as stock market crashes is banking panic. The major cause of banking panic is a decline in the quality of bank assets which is directly depends upon credit quality of the bank. Bank’s credit crisis is the major reason of the banking panic.

During this period, bank debt liabilities mostly consisted of circulating bank notes. The American banking panic has been classified in 6 events: i.e. in 1814, 1819, 1837, 1839, 1857, and 1861. In 1980, Latin America faced saving and loan crisis which took throughout 1980s till early 1990s. More than 700 saving and credit institutions were suffered during 1980s in Latin America. (National Bureau of Economic Research, 1990).

The institutions were lending short term loans from short term sources. Due to the financial mismatch credit and saving institution faced problem. The government responded with a set of regulations called the “Financial Institutions Reform, Recovery and Enforcement Act of 1989” to address the problem.

After 15 years of Latin America Crisis, banking crisis hits on Asian countries. Some Asian countries like South Korea, Indonesia, Laos, Hong Kong and Malaysia faced similar problem of Latin America in 1997. In 1998, one year later, Russia faced same problem (Anderson, 200).

In September 15, 2008, Investment Bank Lehman Brothers US has collapsed due to huge loss. Banks has excessive default loans due to the sub-prime home mortgage loan which was the major cause of global financial crisis. (Investopedia, 2017). In January 2009, city bank faced huge loss. According the Bloomberg news, big American Banks have double liabilities than their assets. Other banks were on the margin of the bankruptcy. (Wikipedia, 2005)

4.2 Credit Crisis in Nepal

There were critical problem in Government owned banks NBL and RBB before commercial banking problem analysis and strategy study (CBPASS) report implementation period in 1990s. Again several problems were identified by KPMG report in 2000 that stated several governance and management shortfalls, extremely poor information system, dysfunctional lending processes, poor strategic planning, business planning and budgeting, low morale of employees and numerous human resource issues, a negative net worth, and bank technically insolvent (Shrestha, 2004). Therefore, the bank required more surveillance and focused restructuring. Nepal bank was taken over by the NRB on March 14, 2002. Subsequently from 22 July 2002, the bank was run by a foreign management team selected through a bidding process under the financial sector reform program of the government. Similarly, The NRB emplaced a foreign management team in January 2003 in RBB. Both of the banks are now performing well and the non-performing loan (NPL) of Nepal Bank Limited has reduced from 60.47% to 2.72% in mid July 2016 whereas Rastriya Banijya Bank is able to decrease non-performing loans from 60.15% to 3.95% in mid July 2016 (Nepal Rastra Bank, 2017).

The non-performing loans of NIDC Development Bank was 86.40% in mid July 2010 which is decrease to 3.85% in mid July 2016. NIDC has been proposing to the government for merger with Rastriya Banijya Bank (Nepal Rastra Bank, 2017).

The non-performing loans of Agriculture Development Bank was 17.96% in mid July 2007 which is decrease to 11.38% in mid July 2016. The bank was upgraded from “B” class development bank to “A” class commercial bank as per bank and financial institution act 2063 (Nepal Rastra Bank, 2017).

Nepal Development Bank Limited (NDB) is the first BAFI liquidated in January 2010. The bank could not exist due to its poor financial situation. It was the first national level development bank which had started its operation in 1998 promoted by private sector. Due to the huge loan loss provision, NDB suffered from huge loss that resulted in negative capital adequacy. The major reason behind NDB’s liquation was lack of corporate governance. As per NRB sources, bank’s executive chairman Mr. Uttam Pun’s poor governance, lack of proper management, insider lending (most of the loans were related to the executive chairman and his family/relative) etc were the major reason behind bank’s failure. Due to insider lending, the bank seemed unable to serve the interest to depositors and investors. Thus, public started to questioning soundness of the entire banking industry. Furthermore, other reasons of NDB’s failure was poor asset liability management, political influence in selection of employees and lack of effective supervision from central banks etc (Nepal Rastra Bank, 2017).

There were direct/indirect influence of political parties in appointment of CEO, loan lending and various unions in government owned banks. Due to the influences, decision making process was lengthy and some decisions were unfavorable to bank.

After NDB, Samjhana Finance Limited also liquidated on 2011. The major reason behind liquidation of Samjhana Finance was corporate governance and insider lending by chief executive officer Mr. Hem Bahadur Gurung and board of directors.

NRB decided to liquidate United Bikash Bank Ltd. on March 2012 due to the misappropriation of the banks funds transferred into call in advance by executive chairman Rabindra Bahadur Singh and other board of directors. They had taken huge amount of advances from bank without proper purpose and documentation. Loan were misused and rescheduled against NRB Directive (Nepal Economic Forum: Nefsearch, 2013).

In 2014, NRB decided to send to liquidation to Himalaya Finance Limited and Crystal Finance Limited, stating the financial institutions is not in a position to come back into operation due to huge insider lending to its promoters and directors. Himalaya Finance has huge loan exposure to the real estate sector. Crystal Finance was declared problematic since September 2012 and Himalaya Finance in January 2013.   Both companies were failing to comply with the central bank’s directive to improve their financial situation and capital adequacy was in negative.

Nepal Share Markets and Finance Limited (NSM) declared problematic financial institution in January 2012 due to the financial fraud by executive chairman Yogendra Prasad Shrestha. Shrestha did the largest financial fraud of the country, by misappropriating clients’ deposits of approximately NPR 2.66 billion. He had misused approximately NPR’1.57 billion through loan granted to various 88 people without any supporting documents, or collateral. A total of NPR 1.45 billion deposits from various large institutional depositors was also used by himself and his family members.

In 2012, same year of NSM financial fraud, NRB declared problematic to Capital Merchant Banking and  Finance Limited due to another biggest financial fraud of approximately NPR 2.5 billion by its chief executive officer Pawan Kumar Karki, other directors and  senior executive. They misused loans by granting in the name of various peoples to invest in real estate sector.

Gurkha Development Bank Limited declared problematic in 2011 due to the insider lending of approximately 500 million by its executive chairman D.B. Bomjon and directors. General Finance Limited was declared problematic in 2012 due to lack of internal control and corporate governance. Due to insider lending, non-performing loan was higher (Nepal Economic Forum: Nefsearch, 2013).

In 2011, Kist Bank’s non-performing loan increased to 24.20%. The main reason of increase in non-performing loan of Kist was huge lending in real estate sector and misappropriation of fund by investment in the name of the close relatives of existing executive officer Kamal Gyawali and his family. Due to the weak financials, the bank merged with Prabhu Development Bank Limited and now operating in the name of Prabhu Bank Limited.Prabhu’s non-performing loan has been decreased to 8.38% on mid July 2016 (Nepal Rastra Bank, 2017).

In 2007, Lumbini Bank Limited has suffered from huge loss. Its non-performing loan was 20.37% and capital adequacy went to -7.82%. The main reason for Bank’s poor financial is due poor credit quality. The bank has been merged with Bank of Kathmandu Limited and   its non-performing loan has been decreased to 2.5% on mid July 2016 (Nepal Rastra Bank, 2017).

Moreover, the Nepal Credit and Commerce Bank (NCC) Limited is suffered from huge loss due to the some insider lending to its promoters and rescheduling of some loan. Its non-performing loans was 31.4% in mid July 2007. The bank is well performing and its NPL has been decreased to 0.91% on mid July 2016 (KathmanduPost, 2014).

Similarly, the Nepal Bangladesh Bank (NB) Limited’s non-performing loans was 39.76% in mid July 2007. Due to the insider lending NB and NCC had suffered from huge loss and they used to swap bad loans of each other and their major promoter were similar. The NPL of bank has been decreased to 0.71% on mid July 2016 (Nepal Rastra Bank, 2017).

In 2012, the NPL of Vibor Bikash Bank Ltd increased to 18.41%. It is decreased to 0.71% on Mid July 2016. Before 2012, Vibor was performing well. Vibor faced crisis due to huge loan lending in real estate sector. Now the bank has been merged with Bhajuratna Finance and Society Development Bank Limited and operating in the name of Vibor-Society Development Bank Limited (Nepal Rastra Bank, 2017).

Kuber Merchant Banking and Finance Limited has been declared problematic on 2012 by NRB due to huge amount of loan misused by board director Sudhir Basnyat. Basyat who has misused approximately NPR 3.89 billion deposits of more than 7000 depositors of Oriental Cooperative Limited (Nepal Rastra Bank, 2017).

Similarly,World Merchant Banking and  Finance Limited, Arun Finance Limited,  Corporate Development Bank Limited, Narayani Development Bank Limited, Lalitpur Finance Limited, Synergy Finance Limited, Patan Finance Limited, Annapurna Bikash Bank Limited, Public Development Bank Limited, Siddartha Development Bank Limited etc faced crisis and  non-performing loan increased to high level due to insider lending and  huge lending in  real estate sector (Nepal Rastra Bank, 2017).

Recently in 2017, BAFI s are facing problem of credit crisis. As per NRB sources, banks made massive investment in non-productive sectors like real estate, housing, hire purchase etc in last 6 months. As a result, the credit to capital and deposit (CCD) ratio of many BAFI s   has been crossed 80% and they are unable to lend. The interest rates on fixed deposit increased by double. Currently, Some banks is offering upto 13% in fixed deposits as a result, banks increased interest rates on existing loans by 2% to 4% (Nepal Rastra Bank, 2017) .

Both the central bank and bankers admitted that two factors are responsible for the current liquidity crunch in the banking sector. The first is excessive lending by the banks over the last six months compared to deposit collection and the second is the Nepalese government’s failure to spend its resources, which has prevented its available funds from reaching to the banks. However banking sector is feeling comfortable from current few days i.e. from March 2017.

Details of Problematic BAFI (As on Ashwin 2073 (Mid October 2016 )

Sn. Name Date (B.S.)
1 Nepal Share Markets and  Finance Company 2068.09.28
2 Crystal Finance Limited 2069.06.07
3 Kuber Merchant Banking and  Finance Limited 2069.09.23
4 Capital Merchant Banking and  Finance Limited 2069.10.09
5 World Merchant Banking and  Finance Limited 2070.01.13
6 General Finance Limited 2070.02.12
7 Narayani Development Bank Limited 2070.12.27
8 Nepal Finance Limited 2071.08.17
9 Corporate Development Bank Limited 2071.09.04
10 Arun Finance Limited 2071.10.12
11 Lalitpur Finance Limited 2071.12.16

(Nepal Rastra Bank, 2017)

NRB has decided to liquidate the following BAFI till date.

Nepal Development Bank Limited

Samjhana Finance Limited

United Bikash Bank Limited

And

Himalayan Finance Limited

4.3 Findings:

Credit crisis is sudden reduction of the availability of the credit of sudden tighten of the condition required to obtain credit from the banks. During the crisis, banks look as if they are unable to lend much more credits to the clients. Due to the higher interest rate, the payment capacity of the clients decreases.

Insider Lending: The study reveals that the major cause of the credit crisis is insider lending by board of directors and bank’s executive. The board of directors and executives having supreme power increase risks in banking. Most of the BAFIs which were operated by executive chairman (the condition where CEO is selected from directors) seemed failed in proper corporate governance. NRB then tightened to appoint executive or managing director in BAFIs and result; there is no executive chairman or managing directors in Nepalese Banks at present.

Massive lending: After massive earthquake of 12 May 2015, banker highly encourages on lending due to the some positive environment in economy and started massive lending. Business expansion was compulsory to banks due to the capital increment of the banks by 4 times (2 billion to 8 billion) within mid July 2017. Due to the moral pressure to increase business with paid up capital, banks adopted massive lending strategy to utilize the maximum lending capacity as well as to retain earning per share of the bank. Thus, capital hiking strategy of regulatory body forced banks to abnormal business growth.

Corporate Governance: Proper corporate governance assures investors for return on their investment. The study shows that the most of the Nepalese banks and financial institutions have failed due to the lack of proper corporate governance. Misusing the bank’s fund for the personal purpose by the board of directors and executive was major reason for the crisis of the banks. However the NRB has started to inspect via on-site supervision every year instead of every 2 year to establish good governance.

Internal Control: Some BAFI s   were failed due to the internal controlling system. Banks should established good internal controlling system along with necessary arrangement of trainings and seminars to its staffs. An updated credit policy as well as bank’s internal policy and should be formulated and Banks should have separate risk department to minimize bank’s risks.

Strict Regulation: Regulators strict regulation plays vital roles to minimize risks of BAFI s. Nepalese BAFI are performing better after strict regulation of NRB via on-site as well as off-site inspection.

Huge Investment in Real Estate: The huge investment in real estate sector was another major reason for banking failure in Nepal. Any huge investment in unproductive sector is not good for the country. Banks should manage their credit portfolio as per risks. Later on after crisis, NRB has issued circular to BAFI to lend up to 25% of overall loan portfolio in housing and real estate sector.

Political Influence: The main reason of failing government owned banks was political influences. Banks should away from any political influences in appointing CEO, loan lending, presser of various unions in decision making etc.

Credit crisis impacts on overall growth of the BAFI s. A better CRM system is required to avoid credit crisis as well as to continue growth of the BAFI s. Further studies can build on this study and analyze the impact of other macro and macro economy variable on credit crisis.

  1. Conclusion

This study shows that, insider lending, lack of strict regulation, lack of corporate governance are major influencing factors of credit crisis in Nepalese BAFI. These factors have been found the main influencing factors in majority of problematic BAFI. Similarly, political influence, huge investment in real estate and unproductive sectors, lack of internal control and massive lending also have been found the influencing factors of credit crisis in Nepalese BAFI. Bhattarai (2015) has opted the similar on determinants of non-performing loan in Nepalese commercial banks. Furthermore, Singh (2004) has also opined the similar conclusion on the study of credit crisis of Pramuka Saving and Development Bank of Srilanka. Hutchison and McDill (1998) concluded similar finding from his study on banking crisis in Japan.

Due to the current scenario of enhanced capital base, BAFIs have adopted the strategy of aggressive lending to carry on their growth rate of profitability as well in comparison to enhanced capital. In this situation, Nepalese BAFIs are advised to develop good credit risk management system to minimize credit risk. Similarly, Nepal Rastra Bank, a regulatory body should make strict regulation and it should conduct timely on-site-supervision on case basis to control credit risk of BAFIs.

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