Strategies and Best Practices for Non-Performing Assets Management in Commercial Banks of Nepal: A Comprehensive Study

Abstract

The growing number of Non-Performing Assets in Nepal’s banking sector has led to problems with financial stability and operations. Proper management of NPAs allows banks to preserve profit margins and maintain steady carrying of loans. Thus, the research looks into the management of NPAs in commercial banks in Nepal to assess how asset quality, profits, and the required capital are related. This study intends to measure why ineffective management and supervision lead to higher NPAs and how these, in turn, impact a bank’s performance. In order to reach its objective, the current study applies a quantitative method and uses information found in annual financial reports of a group of commercial banks. Total Non-Performing Assets (TNPA), Net Profit After Tax (NPAT), and Capital Adequacy Ratio (CAR) were examined by using Pearson correlation analysis. The statistics confirmed that there was a very strong positive relationship between TNPA and NPAT (r = 0.927), and between TNPA and CAR (r = 0.931). Still, the presence of such connections does not show that there is a direct relationship, so we should be careful when looking at them. In theory, a rise in NPAs should make banks put more money aside as provision for loan losses, which could lead to a loss in profit. Instead of NPAs impacting them positively directly, banks might benefit from them because of other factors, such as taking on more loans, growing their capital reserves, or gaining income from many different sources. According to this study, strong credit risk evaluation as well as effective supervision by regulators are important. While the research findings show some interesting results, regression analysis using the right control variables should be done to confirm the actual relationships between the variables. The information collected helps to understand proven ways to handle NPA issues in the commercial banks of Nepal.