E-Kantipur

KATHMANDU, DEC 03 -

Nepal Rastra Bank (NRB) has been mulling introducing a legal mechanism on acquisition to encourage consolidation of the financial sector believing that mergers alone would not reduce the number of banks and financial institutions (BFIs).

With some commercial banks more keen on acquisition than merger, the central bank is all set to move ahead to introduce an acquisition policy. Currently, acquisition of financial institution is difficult as there is no related legal provision.

“We are looking into options to open the door for acquisitions through the existing legal mechanism as there is no law on acquisition,” said NRB Governor Yubaraj Khatiwada.

NRB officials said that about half a dozen banks had held talks with the central bank about the possibility of acquiring regional development banks and finance companies to reach out to new areas.

The officials said that they were encouraging banks to acquire small financial institutions. “There is also a desire among promoters of many small-scale financial institutions to pull out,” said a senior NRB official. “This will give an exit to financial institutions and their promoters failing to operate FIs prudently.”

As mergers are a lengthy process, the central bank believes acquisition in the financial market is possible. “Acquisition is a relatively faster process as it can be done once the buyer and the seller reach an agreement,” said an NRB official.

Nepal Bankers Association President Ashoke Rana said that if some legal basis was created for acquisition, it would encourage many banks to acquire small financial institutions. “We will also look at the possibility of acquiring small financial institutions,” said the chief executive officer of Himalayan Bank.

Laxmi Bank Chairman Rajendra Khetan said his bank was seeking to acquire banks having assets worth between Rs 20-25 billion. “We don’t say no to mergers, but it will be comfortable with the acquisition process,” said Khetan.

Bankers say the introduction of legal provisions for acquisition will help bring down the number of BFIs in the country.

There are currently 31 banks, 87 development banks, 79 finance companies and 21 microfinance development banks licensed by NRB as of the end of the last fiscal year.

Given the huge number of BFIs in the country, the central bank has been stretched to its supervisory limit. As it struggles to monitor and supervise the mushrooming BFIs, cases of bad corporate governance and malpractice have emerged in the last one and half years with a few FIs landing in trouble.

The liquidity crunch of last year, heavy exposure to the real estate sector and corporate governance issues have forced the central bank to come up with merger bylaws. With many financial institutions now keen for merger, central bank officials expect about 50 BFIs to merge. Recently, the central bank recently gave a letter of intent for the merger of Annapurna Development Bank and Suryadarshan Finance, Business Development Bank and Universal Finance and Pashupati Development Bank and Lord Buddha Finance.

Posted on: 2011-12-03 08:14

Post Your Comment

Please note that all the fields marked * are mandatory.
* Full Name
* Address
* Email Address
* Comment
* Captcha	Get another CAPTCHA code
Note:	Comments containing abusive words or slander shall not be published.