What Are Non-Banking Assets?
Non-Banking Assets (NBAs) are essentially any property or assets that a bank ends up owning not because it wanted to but because a customer defaulted on a loan. In financial statements, BFIs in Nepal list these assets under the "Investment Properties" heading.
Let’s break it down with an example to make it clearer:
Imagine a customer takes out a big loan from a bank to buy a house, using that house as collateral. If the customer can't pay the loan back, the bank takes ownership of the house to recover the unpaid loan amount. This house, now owned by the bank, is a "Non-Banking Asset."
Banks don’t intend to hold onto these types of assets because they’re not part of their primary business. They’re only meant to lend money, not own real estate, cars, or other items used as collateral.
What Happens When the Bank Sells It?
The bank’s main goal with NBAs is to sell them quickly and recover as much of the unpaid loan amount as possible. Banks are motivated to sell NBAs relatively quickly, so they’ll price it to attract buyers but still recover the loan amount.
Who Gets to Buy It?
Generally, anyone interested and qualified can buy NBAs. Since banks prefer to get rid of these assets, they’re often priced attractively, which can be appealing to investors or homebuyers. Many NBAs, especially real estate, are sold through auctions. These auctions are usually open to the public, giving a fair chance to anyone looking for a good deal.
Why should Banks Sell NBAs Quickly?
Banks focus on lending, not managing or holding properties or equipment. By quickly selling off NBAs, they free up resources and turn these "unwanted" assets into cash they can use for their core business activities—like making more loans.
So, in short, NBAs are assets that a bank never planned to own but acquired because someone defaulted on a loan. They’re essentially trying to sell these as soon as possible to recover their money, and buyers—whether individuals or investors—often get a good deal in the process.
Currently the bank has non-banking assets worth 2.91 Arba, while all BFIs (A, B and C class) have a combined NBAs of 37.9 Arba. With how slow and sticky the real estate market has been, would BFIs be the catalysts in the real estate market?
