It is said that for a bank to be strong, growth of core business activities and net profit is must. However these aspects are simply not enough as banks must minimize their business risk as well. Business risks in banks mainly arise due to default of its loan and advances which is also known as Non-Performing Loan (NPL). Higher the NPL, Higher is the default in loan and advances indicating high risk on business of banks.
The average NPL of the entire banking industry stood at 1.56% in the FY 2072/73. The NPL of the banking industry declined from 2.10% of the FY 2071/72.This shows that the banking industry’s risk has declined this year resulting better prospects for doing banking business in upcoming years.
During the review period, Prabhu Bank Limited has the highest NPL of 8.38% and Sanima Bank Limited has the lowest NPL of 0.02%.
Out of 28 commercial banks, 12 banks have NPL below 1%, 10 banks have NPL between (1-2) % and remaining 6 banks has NPL above 2%. Till the review period FY 2072/73 the commercial banks has extended a loan and advances of Rs 1379.98 billion which means Rs 21.52 billion loan and advances is in risk.
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