Bankers seek incentives for borrowers to execute provision of credit rating

Kathmandu, August 18

Bankers have sought incentives for borrowers to execute the provision of credit rating of borrowers who want to avail loans of Rs 500 million and above, and renewal of loans as provisioned by the Monetary Policy.

Borrowers will not be encouraged to opt for credit rating without any incentive, as there are multiple challenges to execute this policy introduced by the Monetary Policy.

The firms that avail loans worth Rs 500 million and above are big companies and they will be reluctant to disclose all the information about their company that a credit rating requires to avail the bank loan because their competitors — businesspeople — might be in the board of the respective banks and financial institutions (BFIs), according to Gyanendra Prasad Dhungana, president of Nepal Bankers’ Association.

“On the other hand, BFIs cannot issue loans on the basis of rating without collateral or guarantee. If collateral or guarantee is a must, the borrowers will not be encouraged for credit rating of their companies because it is a costly affair.”

As per the provision of the Monetary Policy, BFIs must float loans on the basis of credit rating for loans of Rs 500 million and above. “In this regard, the cost of rating could also be a liability for the BFIs and if so, the cost must be adjusted in lending rates,” said Dhungana. “BFIs cannot treat borrowers differently based on their ratings if the cost of rating has to be borne by the BFIs.”

Dhungana further stated that Nepal Rastra Bank and Securities Board of Nepal (SEBON) need to carry out groundwork for the effective execution of the policy. Borrowers who receive good rating should be provided tax incentive or relatively cheaper credit compared to others. Likewise, SEBON should make the rating agency liable if the company which has been accorded good rating cannot perform accordingly, when the government comes up with fiscal and non-fiscal incentives for them.

However, the rating companies have said that credit rating of the borrowers is critical for the BFIs and will ultimately support the stability of the financial sector. “BFIs should take the provision of borrower rating in a positive note as it will eventually assist in risk projection and facilitate portfolio management and monitoring,” said Kishor Prasad Bimali, assistant vice president of ICRA Nepal — a credit rating agency — adding that the rating is a tool for self-correction
for every business enterprise and recommends the diagnosis and enhances the reliability and credibility in the market.