Financial stability is a prerequisite for economic growth, and poorly regulated savings and deposit cooperatives and non-banking financial institutions, in particular, are unseen threats to the stability of the country’s financial sector, experts said Friday.

Speaking at an interaction programme entitled Financial Sector Stability: A Priority for National Agenda organised by the Society of Economic Journalists-Nepal, Nepal Rastra Bank (NRB) Governor Chiranjibi Nepal said that if these sectors were not brought under a strong regulatory framework, they could pose a threat to the entire financial system.

According to the central bank, these unregulated institutions hold more than 15 percent of the people’s savings. “There is a huge movement of money in cooperatives. They must be regulated to make sure that the movement of money is tracked,” said NRB Governor Nepal.

He added that the central bank had introduced several measures to strengthen financial stability through the monetary policy for the current fiscal year. “But non-banking institutions and cooperatives do not come under the regulatory parameter of NRB.”

Strengthening the supervision and monitoring of systemically important banks, conducting branch audit of commercial banks, developing a housing price index and raising the limit of the deposit guarantee to Rs300,000 from Rs200,000 are some of the measures inserted in the monetary policy to strengthen the financial system, according to NRB.

NRB Governor Nepal also underlined the need for consistency in the stability of the financial sector. “There should be consistency in the stability of the financial sector. In the absence of consistency, any undesirable incident can destabilise the entire system,” he added.

Shree Krishna Nepal, joint secretary at the Ministry of Finance, said, “Based on the lessons learned from the global financial crisis in the past, the economy will be damaged and we will also suffer if we cannot manage financial system,” he said.

According to Nepal, who is also the chief of the International Economic Cooperation Coordination Division at the Finance Ministry, the government has taken various measures to make the financial system prudent, reliable and stable.

Bimal Koirala, political economy advisor at the UKAid-funded Financial Sector Stability Programme, underscored the need to strengthen the regulatory and supervisory capacity of regulatory bodies to maintain financial stability in the country.

Strahan Spencer, senior economic advisor of DFID Nepal, said that firms and households were most vulnerable to economic or financial shocks.

“One of the important lessons from the global financial crisis of 2008 is that we should not take financial stability as granted,” he said, warning that sophisticated financial products could pose a risk to the financial sector.