Agency: Non-performing loans (NPLs) in the financial sector increased by 7.23 percent in May 2025 compared to the same month last year, according to the Macroeconomic Situation Report from the Ministry of Finance (MoF). NPLs stood at 3.33 percent, equivalent to about Nu 8.3 billion (bn).
The report stated that the increase was driven by higher NPLs across most sectors, except in production and manufacturing, loans against shares and securities, and loans to contractors. The housing sector, together with trade and commerce, accounted for about 41.40 percent of total NPLs, reflecting the largest share. These sectors, along with manufacturing, also hold the highest share of bank credit, raising concerns about systemic risks to the financial system.
The Royal Monetary Authority (RMA) introduced targeted loan restructuring measures starting in July 2025 to address rising NPLs. The new approach moves away from blanket deferments and focuses on borrower-specific solutions, including interest-only payments, repayment moratoriums, capitalization of overdue interest, extensions of loan maturities, enhancements of credit facilities, splitting loans, and conversion of term loans. These measures aim to ease repayment pressures while maintaining financial stability, though the report cautioned that such policies could create perverse incentives that may undermine stability in the long run.
The report also portrayed inflation trends. Headline inflation for June was recorded at 3.65 percent, slightly lower than 3.85 percent in May but higher than 2.13 percent in June last year. The decline from May to June was mainly due to a drop in the food index, from 6.42 percent to 5.45 percent, and a sharp fall in the communication index, which dropped from 7.77 percent to -3 percent. Looking ahead, inflation is expected to increase slightly, driven by rising food prices and influenced by both domestic factors and global trade developments.
